Invoice Financing Is Becoming a Critical SME Financing Vehicle

 Bad debt and unpaid invoices can be disastrous for small and medium size business enterprises. In order to protect their business from bankruptcy and recession, entrepreneurs often turn to alternative types of financing. Recent studies have shown that small and medium enterprises are massively turning to invoice financing in order to maintain high cash flow. If your clients are late with their invoices, or you offer them flexible repayment plans, you need to close the cash flow gap in order to run your everyday business operations.

Invoice Financing

Invoice financing is not only popular in Australia. According to British Daily Mail, more than 60% of invoices issued in United Kingdom are paid late. In a recent survey conducted by Zurich, 41% of 600 small business entrepreneurs questioned, complained that unpaid invoices had a disastrous effect on their cash flow and business development. Also more than 60% of entrepreneurs said that they’re familiar with cases when business owners needed to close their operation, due to unpaid invoice accumulation. 

Invoice financing is the process where third party is willing to buy off unpaid invoices for a fee or at a smaller price. This way the invoice sellers can plug in their cash holes and maintain their liquidity, while the buyer gets the full amount of invoice after repayment process is over. Invoice buyers can be independent, or a part of larger financial institutions, while sellers are mostly small and medium size enterprises that require constant money influx for their business development. 

Invoice Financing as a Perfect Funding Source

Invoice financing is one of the primary funding sources for small and medium size businesses at this moment. These companies need to be very flexible in the first phases of their development. They need to offer relaxed repayment plans in order to attract more clients and prospects, which means entrepreneurs can’t invest their revenue into company’s growth right after they sell something. Since time is one of the most important factors in business, this causes them to miss great business opportunities and it can also lead them to bankruptcy if some difficulties occur while they’re waiting for invoice payments.

For this reason, many small business entrepreneurs are deciding to sell their invoices to independent or corporate invoice funders. In Australia, invoice financing and invoice discontinuing has been very popular recently. Australian Debtor & Invoice Finance Association stated that in the first quarter of 2015, Australian businesses used $15,3 million worth of invoices to get loans and advances, which is 1,9% more comparing to the first quarter of 2014.

Trends on the British market are very similar. Business portal Start-Ups reported that in the first quarter of 2016, more than 711 million pounds was lent to small businesses through invoice financing. This represents a staggering rise comparing to the first quarter of 2015, when small businesses have lent 485 million pounds. 

Why Is Invoice Financing So Popular?

Since 2008 Economic crisis, small business entrepreneurs feel reluctant when it comes to taking standard business loans. On the other hand, invoice financing offers are usually much more flexible. 

Companies that provide invoice loans offer competitive prices and quick turnaround. Even the companies that pay their clients in full, and then charge fees depending on the invoice repayment length, agree to write off all additional interest if entrepreneurs manage to pay their debt early. Banks and credit unions, charge early repayment fees in cases like these. 

In addition to this, most invoice financing companies are very discrete and your clients will never find out that their debt is being transferred to another company. This way you don’t need to fear about your reputation among your top clients. Some small business entrepreneurs also use invoice financing in a more strategic way. They only cash in the invoices that can hardly be repaid or those with longer due dates. This way they can double or triple their investment before invoices expire. 

This concept also allows you to turn your clients’ bad debt into a regular investment. If you already tried all debt recovery tactics and strategies and you want to increase your cash flow and invest funds into developing your business, finding a competitive invoice financing offer is definitely the right thing to do.