There comes a time in the life of every small business when cash gets a little tight and decision makers look for outside sources of funding. Many small business owners will hop on the chance to secure a loan. But not everyone is stoked about the process and time to get approved for a traditional business loan. For these small business owners who seek timely financing to invest in their business, invoice financing may be a much more sensible funding option.
What is invoice financing?
Commonly mistaken as invoice factoring, invoice financing allows you to borrow against your uncollected receivables. Instead of letting unpaid invoices collect dust and hinder your business, you can use an invoice financing service to advance payments on outstanding invoices. In a way it operates like an on demand business cash advance against unpaid invoices. When you advance cash for unpaid invoices, you usually repay the advance, plus a small fee, within a certain time period.
The terms “invoice financing” and “invoice factoring” are often used synonymously, though they’re not the same thing. Traditionally, invoice factoring requires small businesses to sell their unpaid invoices to a third party at a hefty discount. Making matters worse, your customers end up paying the factoring company, not your business—which can be slightly embarrassing, to say the least. With invoice financing, small business can get a revolving credit line against unpaid invoices without affecting their relationships with their clients.
Invoice financing allows small business owners to reclaim control of their cash flow. Instead of scrambling to put together money to pay bills each month, they get the peace of mind that comes with knowing funds are only just a click of the mouse or tap of the finger away.
In addition to helping small business owners pay regular operating expenses, invoice financing services can also give companies enough padding to develop new products; launch new marketing initiatives; buy new equipment and technology; open additional locations; and remodel their storefronts, restaurants, and offices, among other things.
The difference between Invoice Factoring and Invoice Financing
|Invoice Financing||Invoice Factoring|
|Use Unpaid Invoices as Your Credit Line||Yes||No|
|Advance up to 100% of your unpaid invoices value||Yes||No|
|Use it as you need it||Yes||No|
|Sell your invoices to a third party||No||Yes|
|Lender may contact your clients directly to collect unpaid invoices||No||Yes|
How can I get started with invoice financing?
Fundbox makes invoice financing easier than ever before. Creating an account is fast and simple: No long approval process or mountain of paperwork to fill out. Next, click to connect your accounting platform such as QB Online or Freshbooks to your Fundbox account. Once approved, you’ll see your available invoices in your Fundbox dashboard. Select an invoice to advance, and voila, the funds are in your bank account as soon as next business day. You can learn all about Fundbox short term financing rates here then have either 12 or 24 weeks—your choice—to repay the advance, plus a small fee. Repay early, and the remaining fees are waived.