Top 5 Most Common Misconceptions About Invoice Financing

Did you know that there are more than 30.2 million small businesses in the United States? Small businesses make up 99.9% of all businesses in the country. With the number of SMEs fueling the U.S. economy, you’d think that access to additional working capital is readily available. Unfortunately, this isn’t the case.

Since traditional business loans are harder to get, small business owners turn to invoice financing for their working capital needs. Financing your invoices is a great way to control your cash flow and secure funding against your pending invoices. However, many entrepreneurs miss out on this fast and convenient method of funding because of the following common misconceptions about invoice financing.

1. Myth one: You need to finance ALL of your invoices.

While this may vary, most invoice financing specialists offer flexible solutions where business owners can choose the number of invoices they want to finance. As you look for an invoice financing company, make sure to opt for one that offers the most flexibility. This is ideal for companies that need guaranteed cash flow every month or for businesses that deal with seasonal demand.

2. Myth two: Invoice financing is only for companies in trouble.

This isn’t true at all. Invoice financing is a funding solution for all types of businesses with pending invoices. Whether you’re a growing business or an established one, you’ll find that invoice financing can quickly give you the money flow you need.

3. Myth three: Financing my invoices can jeopardize client relationships.

Invoice financing companies do not benefit from damaging business-client relationships. Damaged relationships won’t benefit invoice financing companies at all. The better the relationship you have with your clients, the higher the chances of on-time payments.

If you’re concerned with your business’ privacy, there are lending companies that are willing to be a “silent partner.” This means that there are lending companies that offer neutrality, so your customers won’t know that you’re financing pending invoices.

4. Myth four: Invoice financing is too expensive for small businesses.

Just like any other service, invoice financing comes at a cost. However, the price of financing your invoices is not as expensive as most people think. Invoice financing companies charge a small service fee to cover day-to-day operations and to cover the costs incurred to manage your purchase ledger.

The service fee is generally calculated depending on your turnover, usually between 0.3% and 0.5% of your total invoice value. Other than the price, you also need to pay a little interest on the amount of each invoice. The interest is usually a fixed rate, but it can vary from lender to lender.

5. Myth five: Invoice financing is only applicable to companies with cash flow issues.

The truth is that invoice financing can help in effective and efficient cash flow management. However, financing your invoices is not exclusive for companies with cash flow issues. Many small businesses use invoice financing to grow and expand their companies.

Invoice financing allows you to use pending invoices as collateral in exchange for immediate funding. The process of financing your invoices is typically quicker and more straightforward than applying for traditional business loans. In addition, the financing company you’ll work with is in charge of collecting invoice payments so you can focus on running your business. For this reason, business owners, not just those with cash flow issues, finance their invoices.

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