First things first, invoice financing is not a loan.
Instead, it is a non-debt option for businesses like yours to get an advance against your business’ unpaid invoices. Companies like Raistone acquire your invoices for a small percentage fee, so you don’t have to wait for 30, 60 or even 90+ days to be paid.
With customers extending their Days Payables Outstanding, it forces suppliers to wait longer for their payments. This can often have a negative impact on growth and even sustaining business operations. It is important to have capital on hand so your business can continue working towards its goals.
More and more businesses are looking for quick relief to get them through the longer payment cycles. Here are some of the pros and cons of invoice financing for businesses.
Pros of Invoice Financing
- Enables businesses to receive early payment of invoices to reduce Days Sales Outstanding
- Offers more predictable cash flow and supports greater control and visibility over-payments
- Offers non-recourse cash at a competitive cost
- Non-debt so it won’t show up on your books
- If you work with the right company, the fees are very minimal
- Your business doesn’t need to have good credit. Often invoice financing companies use the credit score of your customers versus your own credit score when analyzing qualifications
Cons of Invoice Financing
- It can cost more than traditional financing (e.g. bank loans). Some invoice financing companies charge exorbitant fees. You want to be aware of the fee structure to ensure you end up with the majority of your funds due you
- Invoice financing only solves your cash flow problem. If your business has other challenges, then they will still be there, only you might have more money in the bank to help resolve them.
- There are invoice financing companies that contact your customers directly, which means you have to tell them that you have financed your invoices. While at one time there was a negative perception of invoice financing, the reality is that the majority of businesses use it at some time or another when they need the extra capital.
If you want to learn more about invoice financing and if it’s right for your business, contact our team at any time.