What Is Invoice Factoring?

Small business owners generally find it difficult to maintain a healthy flow of cash. It’s difficult for them to maintain a flexible working capital account, since most of the money is tied up in preparing orders and assets. On the other hand, most banks are also loath to giving loans to small business owners, mainly due to the risks involved. Therefore, most business owners often have few to no options when it comes to securing external finance. In many cases, they are forced to give up equity in order to secure more funding to keep the business going.

Small business owners

One of the best ways that you can secure some more finances is invoice discounting. Invoice discounting, or invoice factoring as it is commonly known, is a great way to secure some additional capital that can help you grow your business. It is a funding only facility, which is a great choice for business owners who have good credit control.

secure some additional

How Does It Work?

If you want to discount your invoices, you need to find a bank or a lender that offers this service. When you first approach a lender for discounting invoices, they will ask you to show your debtor accounts. You can receive a loan of up to 85% of your total debtor balances in less than a day if the application is approved. Many small business owners have a considerable amount of cash locked up in receivables. This reduces their working capital and makes it difficult for them to fund larger orders and keep production going. If you have an invoice discounting facility, you can use it in order to keep your business afloat.

How Does Work

Is It a Good Option?

Needless to say, companies that offer invoice discounting services also charge interest rates based on the duration of the loan. However, there are plenty of reasons why this is a much better option than taking a direct loan. For starters, you don’t have to worry about providing any real estate security. This will help you minimise the security risk. A basic reason for this is that the company will already have control over your debtor balances.

Another major reason why so many small business owners now prefer invoice discounting is because it provides a quick injection of funds. You don’t have to wait for a week or two in order to get your application transferred and then have the funds transferred to your account. Instead, you can get the funds deposited in your account in less than 24 hours.

providing real estate security

You can also maximise your working capital by using invoice discounting in conjunction with other business-related services, such as asset finance, trade finance, and bad debt protection. It is a great way for small business owners to quicken the pace of growth and to generate more money in a short amount of time. It is a much better option than applying for a loan, and you can easily get the invoices discounted at a good rate.