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 way for small and medium-sized businesses to finance their invoices is a practice known as factoring. Factoring companies usually like to take your full book of receivables and pay you a fixed rate. Some smaller companies prefer this service, as it essentially outsources their collections department. For small businesses, the downside of factoring is the cost, which can range to 30% APR, and increase when a customer fails to pay on time.
Alternatively, invoices can be sold, such as to a bank, asset fund, or hedge fund. These types of transactions can also accelerate cash flow, but the collections process is not outsourced. The business must collect when the invoice matures, pay amounts due, and still stomach a cost anywhere between 8%-15% APR
Most banks will offer business credit lines that leverage receivables or company assets as collateral. This creates debt on the books. Companies risk damaging their credit or going out of business if a customer does not pay.
This fall, Crowdz will offer an invoice auction exchange that will allow you to receive quotes from factoring companies, hedge funds, asset funds, banks, and other financial institutions. This means you will be able to compare real-time quotes for your invoices to better informed as you choose with whom you prefer to do business. Crowdz also has an invoice and cash management dashboard that allows you to see your receivables and cash position in real-time.
A quick example
Consider Julia, who owns a thriving floral shop in a busy downtown business district. She has several large corporate offices into which she sells her product. 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 can Julia get her money more quickly? She will simply log into Crowdz, upload her invoices, and compare competitive rates. Suddenly she will be mere 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 a fee fiasco, or if you just want more liquidity on your books, Crowdz wants to help you get the cash you need. Come check us out!