Posts tagged: invoice finance

Things People Confuse About Invoice Finance

invoiceJust because something’s famous doesn’t mean it’s completely and wholly understood. Take invoice finance for example. This receivables financing method has been in popular use for decades and yet people still find something to confuse about it. Sad, we know but we’re here to help end that or at least lessen it for the mean time with better information and myth busting. Are you ready? Because we sure are.

#1: Is it a loan?

No it is not. Invoice finance may be a funding method but it is an asset transaction. In other words, it creates zero liability because it isn’t classified as one to begin with. When utilized, it decreases trade receivables, increases cash and debits an expense account for the service fee. Additionally, it does not come with interest or an asset-based collateral requirement. Using it will not affect the entity’s credit score and it will even help the financial reports look more attractive as it aids in liquidity.

#2: What happens to my receivables?

Invoice finance involves the sale of the rights to collect against a customer invoice/s in exchange for a cash advance on their value. This means that the collection function including its costs and burdens , at least as pertains to the invoices subjected to the financing arrangement, shall be transferred to the provider or the financial institution. The receivable shall remain to be under the business’ name and control but the burden to collecting them shall be shifted.

#3: Do I risk customer relationship?

No considering that you choose trustworthy and quality invoice finance companies and providers. Make sure to inquire, research and read about them thoroughly first to identify who can indeed deliver. Businesses may also opt for a confidential arrangement where customers are not made aware of transaction between business and financier.

#4: Is it expensive?

Not at all. The fee involved can either be on a per period basis or a onetime thing depending on the specific type of invoice finance chose. Regardless, this is significantly cheaper compared to other financing methods because it is fixed and comes free of any interests.

#5: Can all businesses use it?

Another great thing about invoice finance is that it can be obtained by all businesses regardless of type, industry, size or length in the market. Even startups, small to medium scale enterprises and recovering entities can use it. After all, the cash is derived from a receivable and not a borrowing.

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