Invoice Financing & Invoice Factoring: Know the Benefits and Disadvantages

Posted by Team Finaxar on Dec 28, 2018 7:17:00 PM


invoice factoring and invoice financing know the benefits

Have you ever considered invoice financing or invoice factoring as your business funding option? Many small businesses suffer from cash flow issues and thus apply for business funding options. Invoice factoring and invoice financing are no more new terms in the market today. As per recent reports, 60% of small business owners face cash flow gaps every year.

Reasons for cash flow gaps

There are various reasons why small business companies face cash flow gaps every year. Operating costs may shoot sky high overnight, resulting in major cash flow gaps. Operating costs may shoot up in no time because utilities and supplies increase unexpectedly. As operating costs shoot up, it becomes difficult to generate revenue. During off seasons, a business can slow down, resulting in a cash crunch. Late payments can be one of the reasons for the cash flow crunch.

Invoice factoring and invoice financing can be two of the best ways to manage your business cash crunch. Here are their pros and cons:

Pros and cons of invoice factoring

Invoice factoring is one of the easiest and fastest forms of raising funds for small businesses. Once you decide which invoice you want to sell, the invoice factoring company assesses your creditworthiness. The best part with invoice factoring is that there is no need to have collateral. Invoice factoring organizations directly collect payments from your customers. As your business will not have to constantly follow-up with the customers, you can concentrate on the growth of the business.

On the other hand, invoice factoring can prove to be expensive. Financing costs generally would take a chunk of your profits between your service fees, factor rate, credit check fees, origination fees, and others. Invoice factoring companies directly collect payment from the customers. As most of the businesses work with the factoring companies directly whenever they face a cash crunch, their financial situation gets exposed.

Pros and cons of invoice financing

Invoice financing, another popular small business financing option allows you to take care of your cash crunch situations. Invoice financing allows you to advance the entire amount of your invoices, offering you the money required to solve the cash crunch.

On the other hand, depending on who is your invoice financing service provider, you will have to meet certain qualifying criteria to avail finances. As you are availing money against your own receivable invoices, there would be a limit on how much money you can avail.

Whether it is invoice factoring or invoice financing, check the details of what you get. Both are useful in their own ways and assist businesses to solve their cash crunch.