When faced with the need to finance their operations, businesses may opt for bank loans or lines of credit, financing from venture capital, or even crowdfunding. However, these options require either a full credit check, or result in a long-term commitment that may not be feasible for companies that need a quick cash flow. Here is where flexibility and speed of invoice financing can become a game-changer.
Two traits make invoice financing stand out in your business’s financing toolkit. It helps your company generate cash flow with what you already have – your accounts receivable. It also can be done quickly and efficiently with a simple KYC check and, with the help of modern financial technology, without the restricting framework agreements. With invoice financing, you can obtain funds based on the value of your outstanding invoices, rather than waiting 30, 60 or 90 days for customers to pay. It allows you to get paid faster and eliminate the payment uncertainty.
Let’s examine the advantages of invoice financing and how it enables companies to optimize their finance processes, cash flow cycles, and bottom line.
#1 Unlock cash flow to fuel growth
Invoice financing provides immediate access to the cash tied up in your outstanding invoices, allowing you to free up working capital to reinvest back into your operations. Instead of waiting for your customers to pay, invoice financing provides an advance based on the value of your unpaid invoices. This means that a business can access up to 90% of an invoice’s value within 24 hours of it being issued.
This improved cash flow is hugely beneficial for businesses of all sizes. You can use the influx of capital to pay your suppliers and employees on time, finance new stock orders, invest in equipment or expansion, and cover other operating expenses. The added liquidity improves your cash flow management and provides extra working capital that you can use to seize new opportunities and fuel growth.
#2 Eliminate credit risk
Invoice financing allows you to transfer credit risk from your business to invoice buyer (investor) as with the invoice purchase the risk of late payment or default shifts entirely to them. This is what a ‘true sale’ in invoice financing means: After an invoice sale, your business no longer has to worry about collecting customer payments or receiving late payments as the credit risk is completely eliminated.
Typically, the investor takes on responsibility for invoicing your customers and collecting payment. However, on the WALBING Marketplace, we have developed a frictionless process both for disclosed and undisclosed assignments, for instance, with the help of virtual IBANs, for payment reconciliation. Moreover, as a licensed collector, WALBING also takes care of out-of-court collections for its investor clients.
By offloading credit control and accounts receivable management to the investor, you significantly reduce administrative burdens. You also remove uncertainty around customer payments, enabling easier cash flow planning. Eliminating credit risk provides peace of mind and stability for your business finances.
#3 Improve your credit rating
Invoice financing can help improve your business’s credit rating in a couple key ways.
First, invoice financing lines of credit don’t show up as debt on your balance sheet. This means that your debt-to-equity ratio isn’t negatively impacted like it would be with a traditional business loan. Having a lower debt-to-equity ratio makes your business appear less risky to lenders and creditors.
Second, invoice financing improves important financial ratios that creditors and lenders look at, such as your current debt ratio and quick ratio. The current debt ratio measures your ability to pay short-term debts and obligations. You can calculate it by dividing your current assets by your current liabilities. With invoice financing boosting your current assets, your current ratio improves. Similarly, the quick ratio removes inventory and prepaid expenses from current assets when assessing your company’s liquidity position. By factoring in the funds available from invoice financing, your quick ratio will increase as well.
So by leaving your balance sheet unaffected and improving key financial ratios, invoice financing can ultimately result in an improved credit profile and better terms for future lending needs. This gives your business more financial flexibility.
#4 Increase Sales and Profits
Invoice financing enables you to access capital needed to fund growth initiatives that can directly boost revenues. The influx of capital from invoice financing unlocks the ability to take on new projects, fulfill larger orders, hire additional employees, and make other investments without the cash flow constraints.
With invoice financing, companies can fund inventory purchases, marketing campaigns, new equipment, and other expenses that are key to winning new business and generating higher profits. The freed up working capital alleviates the need to pass up on potentially lucrative opportunities simply due to lacking readily available cash on hand.
Make it a part of your finance strategy
Invoice financing represents a strategic financing solution for B2B companies looking to optimize their finances. By leveraging their unpaid invoices, businesses can secure the capital they need to grow and scale efficiently. The right invoice financing program can provide the working capital, risk mitigation, and operational improvements to take your business finances to the next level.
To learn more about how to finance your invoices with WALBING Cash, reach out to our team: