Growth and innovation lies in the hands of small enterprises. However, these ventures often face the challenge of managing their cash flow, especially when awaiting payment for goods and services already delivered. This is where invoice financing comes in.
Invoice financing is mutually beneficial approach that provides businesses with the working capital online they need and offers investors a unique way to contribute and earn by supporting these promising enterprises.
Instead of waiting for customers to settle their dues, businesses can sell their unpaid invoices to a financial company at a discount, receiving a percentage of the invoice value upfront. This arrangement ensures steady cash flow and unlocks working capital that can be reinvested into operations and expansion.
What is Invoice Financing : A deeper understanding ?
Scenario: Company A and Company B
Imagine Company A, a small manufacturer supplying custom furniture. After delivering a N500,000 order to Company B, a luxury furniture store, Company A faces cash flow constraints while awaiting payment. Seeking immediate funds, Company A turns to invoice financing. They sell the outstanding N500,000 invoice to a financial provider at a discount, receiving N450,000 upfront. This quick capital injection enables Company A to cover expenses and operations seamlessly.
On the investor side, an investor on the financial platform purchases Company A’s discounted invoice. When Company B settles the invoice in 60 days, the investor receives the full N50,000, earning a N5,000 return. This mutually beneficial arrangement showcases how this financing method addresses small businesses’ financial needs while providing investors with unique investment opportunities.
Why Invoice Financing ?
Here are some reasons why you should consider invoice financing ;
Motivation for mutual benefit:
Invoice financing works on the principle of win-win. Small businesses receive the financial support they need to stay afloat and continue to grow without the burden of waiting for payments. Investors, on the other hand, benefit from exposure to an organized set of businesses, allowing them to support entrepreneurship while also potentially earning competitive returns.
Reducing risk through diversification:
One of the benefits of bill financing as an investment avenue is the inherent diversification it provides on the perspective of investors. Investors can choose to finance multiple bills from different sectors, reducing the impact of a single default
Get instant cash without borrowing
Invoice financing works differently because it speeds up the company’s access to the money its debtors owe it. This form of funding does not require a long-term commitment contract.
Refund only on arrival
Invoice financing does not get refunded until your customer pays the original invoice. There are no interest payments involved; in fact, the sponsor does not receive any repayment, as the sponsor’s funds are reimbursed from your debtor when the debtor settles their bill.Great for cash!
Feel better about big plans
Invoice financing allows companies to make larger, more profitable contracts without pressure, they have immediate access to the bill amounts they issue to the larger company without waiting more than 30-60 days for payment.
Invoice financing is emerging as an innovative way to invest in small businesses while providing them with an important financial lifeline. So whether you’re a small business owner looking for instant capital or an investor looking to support businesses in innovative ways, this offers a win-win opportunity to help your business grow.
Take a look at our page to see our invoice financing options.