February 26, 2021 | Raistone

How Does Invoice Financing Work?

An invoice financing company advances you the value of the invoice, often as fast as a day, and collects the invoice when it’s due. This saves you the trouble of following up with your customers to collect the payment.

Invoice financing is simply the conversion of invoices to cash in advance of the due date, giving you working capital to put back into your business.

Invoice financing provides companies like yours an easy way to get cash for your business by advancing you the value of your invoices, minus fees.

Non-Debt Financing Option

Invoice financing is not a loan. Rather, you sell your invoices to a financing company in exchange for a lump sum of cash. The financing company then owns the invoices and gets paid when it collects from your customers, typically in 30 to 90 days.

Invoice Financing Example

For example, let’s say you own a staffing company and have a contract with another business to provide temporary staff to augment their own during peak seasons. This contract created a $50,000 invoice. Your customer agrees to pay off its invoice in 45 days, but you need the cash next week to pay your employees. This gap results in a cash shortfall.

You could turn to a traditional bank for a loan. However, bank loans often require stellar personal credit plus collateral, a physical asset such as real estate that the lender could sell if you default. Or maybe you qualify but can’t wait several months for the loan to close.

So, you turn to an invoice financing company, and it agrees to buy your invoice for $49,000 in cash — $50,000 minus a financing fee ($1,000).

The invoice financing company advances you the value of the invoice minus fees, often as fast as a day. The financing company then collects the invoice when it’s due. This saves you the trouble of following up with your customers to collect the payment.

Invoice Financing Solution

Invoice financing with a company like Raistone is typically a better option for businesses. Low fees and ease of use make this a great option for many companies. Add to that, often, you can select the invoices you want to be financed, leaving the rest to be paid by the customer.

In addition, invoice financing is a non-debt option. invoiceXcel, our FaaS solution easily integrates with many invoicing platforms. This makes it an easy option for suppliers to maintain control of their invoice financing.

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Accounts Receivable Finance, Blogs

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