Invoice financing (IF) is not a reliable source of financing among some business owners due to its relatively high costs and difficult circumstances. Is this perception appropriate? I would argue that this is not a bill with the onset of funding.
What is Invoice Financing?
The company’s sales book is to be sold in cash, providing a continuous source of cash as customers are invoiced by the company. The company can keep the collection or transfer of funds and the related credit risks to the financer.
Some traditional IF facilities can cost many types of fees and costs, which requires the commitment of insurance and company to sell the entire sales book to the financing company.
Some companies offer a fresh financial option, offer only one bill and only a small fee, and usually offers a more flexible financing option.
What Is Single Bill Financing?
As its name suggests, one company has to buy a bill in cash from a company. The company does not need to sell any other bill, so companies can use bill financing to raise funds as needed. In addition, they may not need to provide protection like personal bonds or warranties.
IF or multiple cash management tools are efficient because they liquid non-liquid assets, i.e. they convert the debtor into cash. The money earned by the company can be reinvested in profitable projects or can be used to repay expensive loans.
Some borrowers may argue that the cost of invoicing financing is higher on an annual basis compared to conventional loans. Comparing oranges are comparable to apples because funding tools work differently. Debt is a constant source of financing, while individual invoice financing is different – providing funds for 90 days or less. Thus, the cost estimate for invoice financing is not in line with its use.
Although the interest rate on the loan may be relatively attractive, the cost of organizing and managing it, such as ranking, commitment, non-usage and exit fees, as well as service charges and legal costs of documentation should be calculated. There may be costs to follow and recover bad loans or to pay for credit protection costs. Invoice financing includes own system and administrative costs which can be more or less than the bank loan.
Invoice finance is, therefore, a reliable option for the loan because:
It converts the company’s debtors into cash, which can then be reinvested to get a positive profit on the company.
The company can transfer credit risk to the lender.
It avoids using the bank’s limited credit capability
It brings diversification into the funds of the company’s fund and thereby reduces dependence on the banking sector.
Companies can use it to raise funds as needed.
Security can not be needed
Dr. Leo specializes in asset-backed funding and PhD in asset securitization. His company, Cash for Invoices Limited, is located in London and buys individual invoicing financing solely from merchants, companies, companies and social institutions. There is no obligation to sell invoices to any warranty, and a single charge fee. The invoice can be purchased from GBP250. In particular, the company can buy an invoice from a company and can give the company added 60 days of payment.