What exactly is invoice financing?
Let’s face it, waiting for 30, 60, 90, or even 180 days or longer to get paid by your customer places a huge strain on your operation. You need to be able to make your payroll, buy supplies, and pay the lease, so having cash on the books is important. Invoice financing is a way for businesses to sell their unpaid invoices to another company in exchange for a lump sum payout.
There are several ways to sell your invoices
The first and most common for small and medium-sized businesses are factoring. Factoring companies usually like to take your full book of receivables and pay you a fixed rate. Some smaller companies like this service because they do not have to worry about collecting on the invoice as the factoring company will then handle the collections process. The downside to all of this for businesses is factoring companies can charge up to 30% APR and could even go higher if you have a customer that doesn’t pay on time.
Another great option for businesses is to sell their invoice(s) to a bank, an asset fund or a hedge fund. These types of transactions work similarly to the factoring process above, but the difference is the businesses still manage the collections process, and so they are responsible to pay back the invoice when it matures. The upside to this is that the percentage you pay is a lot lower, anywhere between 8%-15% APR.
Most banks will offer businesses a line of credit using receivables or company assets as collateral. This creates debt on the books and can damage your business credit, or worse even put you out of business if someone doesn’t pay.
At Crowdz we offer an invoice auction exchange that allows you to receive quotes from factoring companies, Hedge Funds, Asset Funds, Banks, and other financial institutions. What this means for you is that you will get the best real-time quotes for your invoices and choose who you want to do business with. Crowdz also has an invoice and cash management dashboard that lets you see what your receivables and cash position is in real-time.
A quick example
Let’s take Julia, who owns a thriving floral shop in a busy downtown business district, she has several large corporate offices that she sells into. She sends the invoices for her flowers to these large corporates at the end of each month. Some of these corporates have payment terms ranging from 30-90 days. So how does Julia get her money quicker? She simply logs into Crowdz and uploads her invoices and now she can see the best rates. From here she is just a few clicks away from receiving cash to buy more flowers, pay her workers and keep her vans on the road.
Whether your business is in a cash crunch, or you just want more liquidity on your books, Crowdz can help you get the cash you need. Come check us out!