Deciding to apply for invoice financing is a major decision that shouldn’t be taken lightly. If your company is ready to grow or if you need additional working capital, invoice financing is a great way to facilitate this change. Invoice financing options can help inject cash into your business.
Invoice financing is a short-term funding solution that gives you quick access to working capital and stabilizes your cash flow. This type of financing involves selling your pending invoices to third-party companies in exchange for upfront cash.
If your company process invoices and you’re waiting for months to get paid, invoice financing is one of the best options available for you. The lending company advances you the money you need so you can bridge cash flow gaps.
Thousands of alternative lending companies offer invoice financing. To find the best lender for your business, make sure to ask these seven important questions before applying for invoice financing.
1. Do you have experience in my industry?
Invoice financing is different from various industries. For this reason, the lender you’re going to work with must have experience in your industry. The financing company you choose should meet your company’s needs. For instance, if you own a beauty salon, you need to work with a financing company that specializes or has experience in granting invoice financing. Lending companies without niche know-how wouldn’t be able to provide appropriate solutions or assess the risks associated with invoice financing.
2. Can you walk me through your application process?
One of the primary benefits of invoice financing is the seamless application process. Compared to traditional bank loans, you can get approved of invoice financing the same day you apply. Most alternative lending companies process loan applications online. All you have to do is to fill up the application form which takes about 10 minutes tops and then hit submit. However, the application process varies from lender to lender, so make sure to ask about it before you apply.
3. How much is your advance rate?
The advance rate is the money that the lending company will give you upfront. Most of the time, it’s 80% of the total invoice value, but in some cases, it could be as high as 90% to 95%. If you need a specific amount of capital, make sure to ask about it. Invoice financing works like this: you get 85% upfront, and the 13% will be given once the invoices get paid. The remaining 2% is the average transaction fee you
4. What are your other rates and fees?
As mentioned, invoice financing charges a small transaction fee. It’s usually a percentage of the total value of your invoices. The fees will vary depending on the lending company you’re working with and the type of funding request you’re asking for. Most financing companies offer an average fee within the range of 0.5% to 3.0%. This is the average rate for a proper invoice financing company. To find the best one for your company, compare the rates with different financing companies that specialize in your industry. Find out which offers the best terms and services for the price.
5. What are the terms of your invoice financing?
Even though invoice financing is a short-term financial arrangement, it’s still important to ask for the terms of the loan. You need to know how much flexibility potential lenders are willing to offer. Don’t forget to ask about the length of the agreement, the renewal process, and the cost to terminate the contract. You also need to ask about the minimum or maximum transaction amounts, as well as collateral requirements. Check the standard turn-around time for funds, but most online lending companies deposit the funds within 24 to 48 hours.
6. Are you going to contact my customers on behalf of my company?
With invoice financing, your customers often pay their dues directly to the financing company, rather than the business. Potential lenders may contact your customers to follow-up on payments. For this reason, you may have to explain to your customers why a financing company will be the one to collect their payments. If your company values confidentiality and you don’t want your customers to know that you used their invoices to secure additional funding, look for invoice financing companies that handle payments discreetly.
7. How do you treat your clients’ customers?
If you do choose an invoice financing company that collects the payments for you, you need to ensure that they treat your customers the way you would treat them. It’s important to ensure that all your customers are treated professionally, with the sensitivity and patience required to avoid damaging customer relationships. Invoice financing companies have different lending capacities, so make sure you’re working with one that can suit your present and future needs.
Check Out Different Invoice Financing Options for Your Business
There are thousands of invoice financing companies in the United States making it harder for companies to choose the best. By asking the questions listed above, you’ll be able to find the most suitable financing company for you.