What Are Invoice Loans and How Do They Work
Many businesses often require additional cash flow to pay their suppliers and employees. It enables them to reinvest in operations that provide higher ROI, thus allowing them to have a stable financial condition. But how can companies arrange for additional cash flow suddenly? They don’t have options to borrow from their friends and relatives. That’s when invoice loans provide respite to companies. below in this article, we will cover the What Are Invoice Loans and How Do They Work.
Understanding invoice loans
An invoice loan allows a business to borrow money against amounts due from its customers. Many people also call this loan as receivables financing or accounts receivable financing. This type of loan keeps your business activities, such as paying your suppliers, reinvesting in new ventures, and paying your employees. Many companies also pay a significant percentage of their invoice amount to the lender. This serves as their loan fee.
These loans address various issues associated with customer payments. Sometimes customers take a long time to pay. Your company cannot wait for them to make their payment. You need to continue with your business activities to take your company forward. Plus, you may have other business credits to take care of. A quick invoice finance from us will solve this problem.
How invoice loans work
Businesses often have to sell goods and services to wholesalers and retailers on credit. This means they don’t have to pay for these products and services immediately. You provide an invoice to the purchasing company that specifies the name and details of the product, the quantity you sold, the total amount due, and the invoice’s due date. Although purchasers should pay the money within the specified date, they usually take longer to repay your full amount. You have to pester them now and then so that they can repay quickly.
These credit transactions eventually tie up your funds, thus limiting your working capital. At our company, we can rescue you from such situations. We can provide you with invoice loans to meet your short-term liquidity. You need to sell your accounts receivables to improve your working capital. It helps to maintain your immediate funds required to continue meeting your company expenses.
How we structure invoice loans
There are two ways of structuring an invoice loan:
1. What is invoice factoring?
In this structure, you need to sell your outstanding invoices to us. We may loan approximately 70 to 85% of your invoice amount. Our company assumes that you will eventually receive full payment for all your invoices. In that case, the loan will remit only 15 to 30% of the total invoice amount. You need to pay fees and interest for the loan accordingly.
Some companies opt for invoice factoring because of its convenience. All you need to do is make sure your creditors pay in full. Otherwise, you may incur a significant loss from both parties: your creditors and your loan lender. Moreover, the lender collects due payments from your customers. Although you don’t have any headache, your customers will know your business position and your financial struggle. This may reflect poorly on your business.
Steps we follow
We follow a specific procedure while sanctioning invoice factoring loans. Most factoring companies usually repay their full amount in two instalments. Their first instalment covers bulk of their receivables. This allows you to get a handsome amount of money to improve your company’s cash flow. You pay the remaining amount once you get payments from your clients. We specify the interest amount and fees for your loan. You need to add that amount while repaying everything.
- Submit your invoice details to us to apply for your loan. We will go through the bills and do background check on your creditors. It helps us determine the chances of recovering money. We will then provide you a loan amount that we can afford.
- If you agree with our terms and loan amount, we will proceed with further documentation. Our representatives will explain everything in detail about how we will collect money from your creditors.
- Once we finish collecting money from your creditors, we will pay the remaining balance after deducting our fees and interest.
2. What is invoice discounting?
Apart from invoice factoring, we also have another financing structure called invoice discounting. This structure is slightly better than factoring. Why? Because you need to collect payments from your creditors. The lender will not intervene. That means no one will understand that you took a loan from a third-party to continue your business activities.
We will provide up to 95% of your invoice amount. You can repay us as and when your clients repay you. Once you finish repaying, we will charge a fee and interest on your loan amount. This is one of the easiest ways to acquire a significant loan amount to keep your business going.
Steps we follow
Like invoice factoring, we also follow specific rules while offering invoice discounting loans.
- Submit your invoice details to us to apply for your loan. We will total your amount and do a background check on your creditors. Background checks are essential as it helps us understand if your creditors will repay you. This is crucial as it helps us provide a specific loan amount. Usually, we can provide up to 95% of your receivables if your creditors have a good credit history.
- Once we approve your loan, you can start collecting money from your creditors. This loan works more like personal loans. We don’t ask any questions as long as you can repay our money within the specified time.
Invoice loans have become highly popular because of their quick access and convenience. It is a challenge to conduct business in cash. Only a handful of wholesalers and retailers will agree to pay cash when they buy products and services in bulk. A small business that doesn’t have enough capital can opt for an invoice loan from us. We will be happy to help you in your hour of need. After all, we don’t want your business to crumble because of your creditors.
Contact us at Key Factors, on 1300 884 100 and a local state manager will be more than happy to discuss your needs and provide you with a quote to suit your requirements today.