You’ve finally decided that now is the time to start your small business. Although you know you’ll have many challenges ahead—especially during your first year—perhaps your biggest concern is this: How am I going to pay for all the initial startup costs? For many small business owners, this includes advertising, purchasing office equipment, hiring employees, buying inventory, and the list goes on. Perhaps you’ve considered your financial options, such as loans or invoice financing.
While there are a multitude of different types of loans available for small businesses, you’ve probably already decided you don’t want to incur major debt right out of the gate. You also don’t want to find yourself unable to pay your bills when you’re just starting to generate income. On the flipside, you want to do your best to ensure that your cash flow remains steady—not an easy feat for new businesses without a clientele, steady customer base, or loyal following. For these reasons, invoice financing may be the best way to ensure that you can meet your financial obligations so you can focus on ramping up your business.
What is invoice financing and how does it work?
Invoice financing is a type of financing that pays your unpaid invoices by advancingg the cash value of those invoices and depositing them into your business’s bank account right away. You’ll then repay the advances over a set time period, but you can start using the money for your business needs immediately. This is often the most affordable financing option for a small business as you won’t have to pay the high interest rates often associated with a business loan or credit advance. Many also confuse invoice financing with invoice factoring, but the two forms of financing are not the same. Here are two key differences:
- Invoice factoring companies advance only a percentage of your invoice value. Invoice financing companies like Fundbox advance 100% of the value of your invoice.
- Invoice factoring companies collect on your behalf from your customers. When you work with an invoice financing company, it’s up to you to make sure you get paid from your clients or customers. Your customers then never need to know that you’ve made alternative arrangements to receive payment faster.
In more detail, here’s how invoice financing works through Fundbox. You set up a Fundbox account and select your bookkeeping app, then choose the invoice you’d like to clear. Next, Fundbox transfers the full amount to your designated bank account. You will then make weekly payments to Fundbox, including a small fee, to pay back these advances. Your weekly payments are calculated by adding 1/12 of the invoice value plus a fee.
For a $1,000 invoice, your weekly payment would be about $89 for 12-week repayment. This includes $83 for invoice value, and roughly $6 in fees. You also have the option to choose 24-week repayment at about $48/week ($42 of invoice value + $6 in fees). Fees may vary, but you’ll always see your fee and weekly payment in the Fundbox dashboard before you confirm the invoice to clear.
The benefits for your new business
With invoice financing, you won’t have to deal with major cash flow gaps, especially when you may be spending an excess amount of money just to get your business up and running. But if you’re still on the fence about invoice financing, here are some of the top reasons why this might be the best solution for your new business:
You will have money in the bank almost immediately with no need to wait weeks and sometimes months to get paid. For a new business, this is key. According to Fundbox: “We can deliver the funds as early as the next business day by purchasing your outstanding invoices without interfering in your relationships with your customers.”
Free and easy
You can sign up online—for free—in under a minute. You can continue using your accounting app, and your outstanding invoices will be automatically available for you to advance through your secure Fundbox account.
Flexible and affordable
You can choose to repay over 12 weeks or 24 weeks. If you’ve got the money to pay it off early, you can certainly do this with no penalties. Fundbox will even waive all the remaining In other words, if you paid them back on week 4, you’d only pay the fees for weeks 1–4. The fees for weeks 5–12 would then be waived.