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How Invoice Financing Could Accelerate Business Growth

Invoice financing, also known as accounts receivable financing, is a way for businesses to borrow money against outstanding invoices from their customers. The main incentive of using this financing option is to improve cash flow.

There are many ways a business can collect money from its customers. For some, the business is paid as soon as a customer makes a transaction. 

However, others are paid on credit. In other words, a customer does not have to pay a business for their products or services upon receipt. Based on the payment terms, they can sometimes wait for 30, 60, to 90+ days until compensation is due.

The latter scenario is common for businesses that sell to large customers such as wholesalers or retailers. It is also how many contract-based organizations such as professional services, gyms, utility companies, and other like-minded institutions set up their payment plans. 

While offering credit to customers has its advantages, it also ties up funds that organizations could use to invest or grow their operations. Therefore to offset potential cash flow challenges, businesses may choose to finance their invoices.

In this blog post, we’ll discuss the details of invoice financing and how it can be a great option to accelerate business growth.


What is Invoice Financing?

Invoice financing, also known as accounts receivable financing, is a way for businesses to borrow money against outstanding invoices from their customers. The main incentive of using this financing option is to improve cash flow. 

As a result, companies can pay employees and suppliers on time, accelerate business growth, purchase more inventory, and more. Many of which are not possible when companies have to wait for their customers to pay their balances in full.


How Does Invoice Financing Work?

As a way to finance slow-paying accounts receivable, invoice financing helps avoid credit problems that occur when customers take a long time to pay (or don’t pay at all). Here’s how the invoice financing process works.

A step-by-step process of how account-receivables financing works:

  1. Company A provides a service for its customers and immediately invoices them.
  2. Company A sells the unpaid invoice to an invoice financing company or platform, such as on the Crowdz Marketplace
  3. Company A receives a portion of the face value of the invoice, usually within days. The percentage amount varies based on risk criteria.
  4. Company A collects payment from its customers as usual. 
  5. Company A settles their account by reimbursing the invoice factoring company.
  6. Company A receives the percentage of the invoice that wasn’t provided in the initial invoice financing agreement minus a service fee. 


To learn more about the process, read our blog post How Does Invoice Financing Work?


How Can Invoice Financing Accelerate My Business Growth?


Eliminate cash flow issues and speed up expansion plans

Invoice financing allows a business to sell its accounts receivable to improve working capital. By doing so, a company is provided with immediate funds that can be used to pay for company expenses and growth opportunities. 

You are no longer at the liberty of waiting 30+ days to receive payment for products and services you’ve already provided. Instead, those outstanding invoices are used as collateral for financing.


Confidently extend payment terms

Waiting months for payments can stunt the growth of small to midsize businesses. However, not offering flexible payment terms (especially terms that are offered by your competitors) can deter customers from working with you. How’s that for a catch 22?

Luckily invoice financing offers the best of both worlds. As a business, you can offer extended payment terms that customers love without having to stress about the harmful impact it could have on cash flow.


Perfect for small businesses with little credit history

Invoice financing is an especially great option for small to midsize businesses with little to no credit history. Because it is a non-banking funding source, there are not as many qualifications needed to obtain funding. 

For instance, newer organizations tend to not have a long credit history that many banks require to receive a loan. Whereas, lenders in this market accept invoice financing applications based on a different set of criteria that is more achievable for small businesses. 


Take Crowdz’ SuRF score as an example. 

Like a business credit score, Crowdz created a new standard in SMB evaluation that investors use to make educated risk decisions. The SuRF score showcases real-time data about a company’s financial strength, payment performance, and sustainability factors. 

In short, as funded invoices are repaid on time, your score will strengthen. And the higher the score, the greater your chances are of receiving invoice financing at low rates.


Remain focused on business growth

Businesses rely on cash to remain successful. Regardless of healthy sales, if there is $0 to operate, an organization will struggle to stay afloat. This mindset can weigh heavy on small business owners who are left chasing money instead of earning it. 

Invoice factoring alleviates these stressors and allows new business owners and entrepreneurs to focus on customer acquisition. There is more time to invest in marketing and sales initiatives when you eliminate the process of tracking down late payments. These aspects can help people grow their business with a clear head.


How to Get Started with Invoice Financing

Crowdz is the perfect solution for small businesses interested in monetizing their unpaid invoices for immediate, working capital. 

To begin, register on the Crowdz Marketplace. Here you can easily upload your invoices to the online marketplace and quickly receive payment. No hassle, no fuss. Money is in your pocket within days without any of the headaches associated with traditional banking loans. 


Check out Your Guide to Crowdz for more information.


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