3 Common Misconceptions of Invoice Financing

Author: Justin Reynolds | November 13, 2015

There are many ways to solve cash flow problems, but making use of an invoice financing tool is perhaps the easiest and most effective.

That’s because invoice financing gives small businesses immediate access to the cash they’re owed. All it takes is a few clicks of the mouse or taps of the finger, and voila—money appears in a company’s bank account in a matter of moments. Businesses then have 12 weeks to repay the advance, plus a small fee.

Being able to advance invoices quickly is essential to success. These days, as many small business owners will attest, net 30 is routinely turning into net 90 or worse. After all, lots of customers have cash flow problems of their own. They have to wait until their own bills get settled before being able to write checks that will clear.

It’s true that trying anything new can be a bit scary. And when it involves your small business’ finances, trying something new can be downright frightening.

But take our word for it: There’s no reason to be afraid of invoice financing—despite any misconceptions you may have heard to the contrary.

With that in mind, let’s take a look at three common myths about invoice financing—and why they shouldn’t discourage you from giving the transformative financial services a try.

Misconception #1: Only failing businesses use invoice financing.

You might think that only failing businesses encounter cash flow problems, but you’d be wrong.

Believe it or not, 60 percent of small businesses run into cash flow problems over the course of a year.

And while a sliver of that group could probably be described as “failing,” a vast majority of them are in great shape—they’re just short on the liquid cash side for a number of reasons (e.g., late payments, rent increases or declining gross margins).

Simply put, small businesses that use invoice financing services are taking proactive steps to overcome cash flow gaps. As a result, they can grow their operations and pad their bottom lines.

Misconception #2: Invoice financing costs an arm and a leg.

By advancing payments on outstanding bills, invoice financing services allow small businesses to instantly access the funds they’re owed. Some folks think that invoice financing sounds a lot like factoring, and anyone who has experience with factoring knows how much it costs.

Good news: Unlike factoring, invoice financing is not expensive. For example, if you use Fundbox to clear a $1,000 invoice, you’ll be responsible for a fee that’s somewhere between $50 and $70, depending how quickly you repay the advance.

Misconception #3: Customers will find out when a business uses invoice financing.

Small business owners certainly don’t want to be embarrassed. In a perfect world, their bank accounts would overflow with cash, and they wouldn’t have to turn to anyone for help.

Some business owners may think that companies that use invoice financing services will be exposed, and once their customers find out they’re dealing with cash flow problems, they may very will look for other vendors and other business partners.

But truth be told, in using a tool like Fundbox, a small business maintains the relationship with their customer and that means you don’t have to set up a new bank account or redirect your customer’s payment.

At the end of the day, invoice financing services are yet another tool small businesses can use to solve cash flow problems. And once that happens, in terms of growth, the sky is the limit.

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