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How Can Invoice Financing Increase Your Business Cash Flow?

By Annapoorna

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Updated on: Oct 12th, 2022

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3 min read

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Cash is an absolute necessity for any business to carry on its day-to-day operations smoothly and efficiently. Steady cash flow is often a problem since most businesses have large unpaid invoices due to delays in payments by customers. Short-term borrowing based on unpaid invoices is invoice financing. Lenders offer this service to their business customers.

Ways in which Invoice Financing can increase cashflow for your business

Frees up capital

When invoices are issued to the customers, they normally offer a repayment period of up to 90 days. While this is a boon to customers and gives them the luxury of time to make the payments, the businesses are often left cash-strapped, thus putting a pause on their ability to carry on regular operations efficiently. Opting for invoice financing gives the business the cash it needs to carry on these operations without any hassles or delays. It also frees up capital tied up because of unpaid bills/invoices.

Immediate access to cash

The business gains immediate access to cash through alternatives such as invoice financing. Most fintech companies today give businesses access to cash within 1-3 business days, thus cutting short any delays. This access is granted quickly and efficiently by offering up unpaid invoices as leverage in exchange for funds. These funds will then be used to run regular operations. The short turnaround period in providing funds will save the business a lot in terms of time and costs if they choose other financing methods.

Payment terms are simple

Payment terms with most financing methods tend to cause a strain, especially financially, on the business. However, when it comes to invoicing financing, the payment can be made to the financier once the business receives the money from the customers. Since the payment needn’t be made within a fixed term, this option allows businesses flexibility.

Most fintech companies provide up to a certain percentage of the value of unpaid invoices to businesses almost immediately. This enables the businesses to function normally and in a smooth manner, thus also ensuring the ability to repay the financier at the earliest.

The method of invoice financing chosen will also have an impact on the terms of the contract, as well as its duration.

No debt accumulation

Technically, invoice financing does not amount to a credit facility. It is different when compared to traditional funding options such as business loans, short or long-term in nature. This is because invoice financing does not impact the debt structure of the business. If anything, it is merely an extension of the payment terms which help facilitate smooth cash flow.

Most businesses struggle to meet the regular business loan criteria because they fail to check one or more boxes in terms of eligibility. All these businesses can find a solution if they turn towards invoice financing. Invoice financing can also be a viable and flexible option for businesses that do not wish to add to their existing debt.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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