Invoice Financing as a Business Loan Alternative

Having a business loan application rejected can be a very heavy blow for a business. Ultimately, this may mean that the business will not be to invest for growth - or not be able to cover certain expenses. For many companies, having business financing is a requirement for growth as they need funds to be able to expand the company into new opportunities.

The two most commonly known financial products that are used to improve a company's cash flow are conventional small business loans and lines of credit. Although these two products are the best know, they don't always provide the best solution. If the biggest challenge your company has is that you can't afford to wait 45 days to get paid by your commercial clients, you should look into invoice financing.

Most commercial transactions follow the same format. The product or service is delivered, along with an invoice. The client then has between 30 to 60 days to pay your invoice, depending on the terms you offer. Many companies have no alternative other than to offer payment terms simply because large companies demand it. It is a cost of doing business, though it could cost you your business if you can't manage your cash flow properly.

One way to solve this problem is to use invoice financing. Invoice financing is a fairly straight forward product that has been gaining market traction in the past years. It eliminates the 30 to 60 days invoice payment wait, helping companies gain a more stable financial footing. One critical difference between invoice financing and other products is that invoice financing companies look at the credit worthiness of the company paying the invoice as their most important source of collateral. This feature makes invoice financing a viable alternative to small companies with thin or no credit, but a strong list of clients.

The majority of invoice financing transactions are structured as an invoice purchase, where the factoring company finances the invoice in two installments. The first payment, usually 80% of the invoice, is made as soon as you submit the invoice to your customer. The remaining 20% ,less the discount, is advanced as soon as your client actually pays for the invoice.