When customers take a long time to pay their bills, businesses are unable to access those funds, which can cause cash flow issues. Invoice financing can provide funds that businesses can use immediately for working capital, payroll, supplier payment, expanding operations, investment, or other necessary payments. It’s common for companies, especially business-to-business companies or service providers, to allow customers to buy products or services on credit. This means that there is a period of time during which the company can expect to be paid a certain amount of money but cannot access it until the customer pays the bill. Companies such as Bluevine also offer software that will tie directly into your business bank account and enable lenders to see your financials. This can make the invoice financing application process incredibly easy.

Commercial Accounting Software

One of the options available to businesses is to utilise invoice financing. Both invoices discounting and factoring are potential solutions to dealing with slow cash flow. However, there are some crucial differences in the way the deals are structured. That means that rather than being strapped for cash while you wait for customers to make payments, you have the money to operate on a day-to-day basis and capitalise on opportunities when they come along. Business owners looking to preserve ownership and avoid diluting equity might find invoice financing a preferable option.

Billing and Payments

That doesn’t mean your small business doesn’t get access to some online payment features, you can still craft time-saving workflows. Both invoice financing and invoice factoring secure financing with outstanding invoices. Companies can use the money from invoice factoring for whatever they need. Once the client pays the invoice, the invoice factoring company will take out their fees and interest and then pay the company any remaining funds they are owed. The lender is now responsible for collecting the payment from the borrower’s customers.

Trade credit insurance as an alternative financing option

Bluevine is not involved in the issuance or servicing of these products. From the $5,000 that’s remaining, the financing company will collect $1,500 for the first 3% fee, and another $1,500 for the second. That means they’re getting paid $3,000, and you’ll get the remaining $2,000. Invoice financing companies offer a range of credit lines—that means you can often finance invoices as small as $5,000 and as big as $5 million. If you prefer getting guidance through this process, Lendio is a good option.

Empower your staff to help grow your business and build lasting client relationships. Grow faster and operate with more agility using our revenue and finance automation platform. Create an invoice and automatically email it to your customers using a language of your choice. Stripe libraries are available for all of the most commonly used languages and frameworks. Stripe’s intuitive APIs and clear documentation make it easy to automate your invoicing workflows, and easy to iterate as your business grows and changes.

• This has the advantage of relieving businesses from time consuming collections efforts.
• There are many traditional factoring companies which tend to serve specific regions and industries.
• Some accounting programs integrate with third-party payment processors, whereas other vendors require you to use their in-house processing services.
• With that invoice serving as collateral, a financial company operating as the lender advances cash to the business that owns the invoice.
• Invoice financing is an accounting method that lets businesses borrow against their accounts receivable to generate cash quickly.
• This is especially crucial for companies that use trade credit for their customers (in other words, “net terms”).

The Best Accounting Software Providers

• If your business sends invoices, the ability to email them and accept online payments can help you get paid faster.
• Unfortunately, these options can be predatory (e.g. lenders that charge triple digit interest) and put your business into a financial hole that’s difficult to climb out of.
• It’s easy to update, void, duplicate, refund, or mark invoices as paid outside of Stripe.
• When you sign on to work with a factoring company, they pay you for the invoice and take on the responsibility of collecting payment from the client.
• Invoice financing—including both invoice factoring and invoice discounting—is facilitated through a lender.

This means that invoice financing is less risky for lenders, as compared to other types of financing such as an unsecured line of credit. There are many traditional factoring companies which tend to serve specific regions and industries. Traditional factors have the ability to offer lower rates than alternative lenders, but have much more restrictive contracts and typically make you factor all of your accounts receivables. With a traditional factor, you’ll also be looking at longer approval times than an online factoring company. It’s a type of small business loan that enables business owners to get a cash advance on unpaid invoices. This is especially crucial for companies that use trade credit for their customers (in other words, “net terms”).

Factoring can be a better solution if you don’t mind giving up control of invoices and you trust the factoring company to be respectful and professional when dealing with your customers. Factoring – also known as ‘debt factoring’ – usually involves an invoice financier invoice financing managing your sales ledger and collecting money owed by your customers themselves. While invoice financing is a fast way to get funding, it’s important to weigh out the pros and cons of this type of financing to determine if it’s the right choice for your business.

Invoice factoring vs invoice discounting

Invoice finance is an increasingly common form of short-term borrowing, often used to improve a company’s working capital and cash flow position. Merchant Maverick’s ratings are editorial in nature, and are not aggregated from user reviews. Each staff reviewer at Merchant Maverick is a subject matter expert with experience researching, testing, and evaluating small business software and services. The rating of this company or service is based on the author’s expert opinion and analysis of the product, and assessed and seconded by another subject matter expert on staff before publication.