As a small business owner, you can turn your unpaid customer invoices into fast cash with invoice funding. It’s closely related to counterpart invoice financing. These options are best for business owners whose customers do not pay for goods or services right away. But who needs cash now to run their business?
Here is what you need to know about invoice factoring and invoice financing. Plus, some options on where to find financing.
Types of Receivable Financing:
It is a common variant of invoice financing for small businesses in industries like clothing or manufacturing, where long accounts receivable are part of the normal business cycle. Factoring works by providing a cash advance based on the total value of the unpaid or outstanding invoices. You typically receive 50-80% of the invoice value upfront (also known as invoice discounting) based on your client’s risk profile. You receive the remaining value once the client pays off the invoices, minus a factoring fee. It generally nets out to be about 3-5% of the invoice value.
For small businesses, it is like factoring, except that it is not a sale of your accounts receivable. Invoice financing works by using account receivables as collateral to get the advance, and you are ultimately responsible for managing the customer relationships and collecting payments, including late payments. The fees are usually 2-4% of your invoice value per month.
Receivable-Based Line of Credit:
Is a credit line based on a percentage (typically 80-85%) of the value of your outstanding invoices? The value is calculated based on the *aging* of the invoices. Namely, they give full value for current invoices and a discount for unpaid invoices. You will pay a pre-negotiated interest rate based on your balance. When an invoice gets paid, your balance will be reduced. There is often a fee when you draw the credit line. But this is frequently a cheaper option than invoice factoring or invoice financing with an APR of less than 20%.
BitX Funding is one of the best options if you are thinking about factoring in your outstanding invoices. Its deep bench of lenders will provide funding up to 90% of the invoice in advance and 10% after clearing the invoices from your customers. BitX works with many lenders that can help you get cash against your outstanding invoices at a competitive rate.
BitXFunding is an online marketplace for small business owners looking to fund a project. We specialize in connecting small business owners with lenders who will compete for your business. We believe small business owners drive the economy and are passionate about helping your company reach its full potential.
You can reach a loan specialist toll-free at 1-800-824-2407 or email [email protected] or apply online here, and we can guide you on which loans are the best fit for your business.