Invoice financing is the future of cash flow management and is a great option when thinking about the best way to manage cash flow, but in many cases business aren’t aware that it is even an option. Even though many bigger industries are using these tools to manage cash flow, these financial tools aren’t necessarily widely known among smaller businesses. We’ve got the scoop for you on the potential for SMB invoice financing.
Downsides of invoice factoring options
If you start looking into it more you are going to run into a lot more material about invoice factoring than invoice financing. Sometimes it is referred to as accounts receivable financing, invoice financing is better than factoring an invoice because factoring an invoice requires that the invoice factoring company collect directly from your client.
In addition, something to consider about factoring an invoice is that the customer will question your business’ long-term viability if they know that the reason they are being contacted by a third-party company to collect an invoice payment is because cash is a little tight. Even in the case where the factoring company whitelabels their product and the customer doesn’t know that it isn’t you collecting the invoice, the terms of the financing aren’t always great.
For example, you don’t get all of the money upfront. You might get 85% upfront and then the rest when they collect the invoice minus the interest and fees that they charge. For a net 30 invoice, you could be looking at 5% of the total amount depending on the company.
Invoice factoring gives you the most bang for your borrowed buck
Invoice financing terms can be a lot better than factoring for a couple reasons.
- You get the full amount of the invoice upfront (in some cases you might be charged a small origination fee).
- The interest rate is much better with companies like ZipBooks only charging .5% per week.
- You have the ability to pay back the cash advance at any time after the first week so you control what the cost of borrowing will be.
- You can pay the cash advance back in full as soon as the client pays the invoice off or even sooner if something else happens to ease the cash crunch.
Invoice financing underwriting is simpler
Another way that invoice financing is less convoluted than invoice factoring is that the underwriting is a lot simpler. Instead of underwriting each invoice as it goes through, invoice financing looks at the general health of your company and figures out a total credit amount that they would like to extend to you you.
Since your business has ready access to a credit line, you can get cash for your invoices within 1-2 business days of sending out a new invoice and the whole process can be automated within a software program that is hooked up to your bank account and the bank account of the invoice finance company.
Who is offering invoice financing?
One company that is doing invoice financing better than most is ZIpBooks. ZipBooks makes invoice financing underwriting easy by providing free accounting software to small businesses.
When you integrate your bank account to pull in expenses and use their invoicing software to process payments, ZipBooks’ underwriters already have the information that they need to make a decision about whether to extend you credit and for how much.
Like most companies, ZipBooks increases the limit of their credit that they extend to a business over time as their repayment history matures.
How do I qualify?
While ZipBooks doesn’t release its official underwriting standards, the process starts by creating an account and filling out their Invoice Instant Payments application.
We could speculate that like most companies who lend money, ZIpBooks is looking for well-established businesses that may have an element of seasonality in their business or are looking for short-term bridge loans to build their business as their contracts get larger and their clients demand better terms. Integrating your bank account and enabling credit cards are both good ways to signal that you are a legitimate business that is in it for the long-term.
Now that you have the tools to bridge the gap that faces every growing business, nothing is holding you back. Go out and take the world by the horns!
