For many businesses, a healthy cash flow is the difference between success and survival. Yet many business owners, especially in the early days, struggle to achieve a healthy cash flow due to late paying customers.
Invoice finance can be a life-saver for those struggling with cash flow. Due to it’s offering of quick access to funds, without waiting for customers to pay their invoices. But is it the right solution for your business? In this blog, we’ll look into the pros and cons of invoice financing to help you make an informed decision.
What is Invoice Finance?
Invoice finance is a funding solution that allows business to get their invoices paid quicker. Think of it this way, once you’ve completed a job and sent out your invoices, you’ll typically be waiting 30+ days to receive payment from your customers.
With invoice finance, you’ll get that payment immediately. Completely removing the long wait, leaving you with working capital to grow your business.
The Pros of Invoice Finance
Instant Cash Flow
One of the biggest advantages of invoice financing is the ability to get paid instantly. This is great for businesses that have long payment cycles but need funds to manage daily operations, pay staff, or capitalise on new opportunities.
Saves Time and Effort
Chasing payments is time-consuming and stressful, taking business owners away from running their business. With invoice finance, the finance provider handles the collection process. This allows business owners to focus on core activities rather than chasing payments.
Flexibility
Invoice finance offers flexibility in managing cash flow, without taking on long-term debt. Businesses can choose which invoices or customers to finance and how often, giving you control over the amount of financing you use.
Scalability
As your business grows, so too can your funding. Invoice finance allows you to increase your funding amount, scaling alongside your sales growth. This makes it an excellent option for rapidly growing businesses.
The Cons of Invoice Finance
Costs
While businesses will receive slightly less than the full value of their invoices due to fees, these costs are often competitive compared to other financing options. The increase in cash flow and the ability to pursue new opportunities offsets this expense.
Dependency
Some businesses worry about becoming dependent on invoice financing. However, this can be managed by using the service judiciously, as part of a broader financial strategy.
Customer Relationships
Some businesses worry that third-party involvement in invoice collection might impact customer relationships. But this can be alleviated by choosing a reputable finance provider known for handling collections professionally.
Suitability
While invoice finance may not be suitable for all businesses, it is a perfect fit for businesses that operate with regular B2B invoicing practices.
Is invoice financing a good idea?
Deciding whether invoice finance is a good idea depends on your specific business needs and financial condition. Here are some things to consider:
- Do you frequently find yourself needing quicker access to funds?
- Are late payments impacting your operations?
- Do you need funding to grow your business?
If you answered yes to any of these questions, then invoice finance might be a good fit for you. If you’d like to get started, you can book a free call with our team today to see if invoice finance is right for your business.
