How Invoice factoring and discounting benefit businesses | Business Upturn

How Invoice factoring and discounting benefit businesses

Over the past few years, invoice factoring has gained popularity, as it allows businesses to sell outstanding invoices to a factoring company at a discount. Typically, borrowers receive 70% to 90% of the value of their outstanding invoices upfront, and the remaining amount, minus applicable fees, is paid when customers pay their balances. In 2021, the global invoice factoring market size was $1946.5 billion and is expected to reach $4618.9 billion by 2031, according to Allied Market Research.

Since invoice factoring limits the business’s control of customer invoices, some firms opt for invoice discounting. Also known as invoice financing, invoice discounting allows you to borrow 80-90% of the outstanding invoice amount. While invoice factoring and invoice financing differ in structure and payment, they are perfect options for securing a small business loan and boosting growth. Here’s how invoice factoring and financing benefit businesses.

Improve Cash Flow Management

Managing credit sales and cash flow is vital for businesses to ensure there’s availability of sufficient working capital for daily operations. However, this task can be challenging for businesses operating on tight margins. To overcome this predicament, many small businesses are shifting to invoice finance.

Invoice factoring and discounting or accounts receivable financing reduces the gap between accounts receivables and payables. Ideally, invoice finance ensures businesses have money in their accounts without waiting for 30-90 days for customers to pay their invoices. Firms can use the funds to settle short-term liabilities, like salaries and payment to vendors. That way, you can free up cash flow and invest in profitable projects or service improvements.

Increased Chances of Financial Approval

Unlike traditional business loans, invoice finance is easy to access because factors like collateral, credit score, and financial history don’t determine approval. The primary concern for invoice finance brokers is the payment history of the customer required to pay the invoice. But before applying for funds from invoice finance brokers, it’s crucial to understand the level of risk, how much you can borrow, and how to get approval. Understanding how invoice financing works is key to identifying the best places to get invoice funding at reasonable fees.

Better Focus on Business

Whether you’re running a small business or large enterprise, managing your company’s accounts receivables can be challenging. When you leverage invoice finance, a professional factoring or discounting company manages your accounts receivable. This means, you’ll have time to focus on core business activities. For example, instead of tracking debtors, you can invest resources in improving marketing campaigns, finding leads, or identifying the best organizational practices.

Firms of all sizes are leveraging invoice finance to borrow money against outstanding invoices. This type of credit helps businesses fund their working capital, thus boosting cash flow. Applying for invoice factoring or discounting is also easy and the approval rate is high. Not to mention, with invoice finance, entrepreneurs can focus more on core business activities.