Before committing to a certain type of financing, we need to be doubly sure that they work to our advantage. Because why do it otherwise? This is why we need to do meticulous research and analysis to end up with a method that suits us best and if you’re reading this then congratulations. You’re on the right track. With that said we begin by getting to know a method that has been gaining wide traction: single invoice discounting.
Invoice discounting is what it says it is. It works by advancing the value of sales invoices, or accounts receivables, prior to their maturity in exchange of a discounted amount, the total invoice value less fee. That definition is pretty straightforward and self-explanatory but for the sake of discussion, allow us to further expound by describing it using the following adjectives.
• FAST – Cash can be released in as fast as twenty-four hours from application. This is only available in one other type of financing called invoice factoring, this method’s one and only sibling.
• EXPEDITED – In essence, it acts to hasten the collection on sales invoices or receivables which pertain to goods and/or services rendered but not paid. It cuts through waiting time so businesses no longer have to wait for the maturity date. This helps not only in expediting the collection process but also in improving liquidity as it makes resources immediately available for use. This in turn helps better cash flows, strengthen working capital and provide for immediate operational needs.
• NON-RESTRICTIVE – The funds received in an invoice discounting arrangement are not restricted so businesses can use them in whichever and however they want. This liberty and flexibility also translates to their users. The method can be utilized not merely by established businesses or those deemed to have proven their adequacy in assets. They are available even to recovering entities, startups and small to medium scale enterprises. Why? The next item on the list should explain it.
• DEBT-FREE – The advance signifies an asset transaction where the invoice is merely used to determine the value of the cash advance and as a form of security held by the provider. Discounting in itself does not categorize as a loan because it is an asset transaction.
• COST EFFECTIVE – Invoice discounting, compared to other financing options, is significantly more affordable. Since it doesn’t pass up as debt, it does not have recurring interest fees but instead a fixed one stipulated at the onset of the transaction. http://workingcapitalpartners.com/about/
Single Invoice Finance comes in two forms namely factoring and discounting. Both methods have become superstars in the world of finance and have been two of the most sought after among business owners and entrepreneurs alike. However despite their popularity and widespread use, a good number of misconceptions still continue to hunt them. That’s bound to end today as we lay down the facts from the fallacies with this list.
The Misconception – “It’s another form of debt.”
Of all the lies and misconceptions about single invoice finance, this is perhaps the most rampant. It’s not that surprising given that a good majority of financial options in the market fall under the category of credit. Just keep in mind that this one begs to differ as it is an asset transaction. It generates funds by virtue of advancing the value of an invoice, one that is yet to mature and yet to be paid at a future date. In the books, it appears as a decrease in trade receivables coupled by an increase in cash.
The Misconception – “It’s only for the established entities.”
Most small to medium scale enterprises, recovering entities and startup companies often shy out of trying to finance their endeavors with the help of financial providers thinking that their application will get rejected anyway. The good news is, single invoice finance is no debt thus it comes without interest and collateral. Even the smallest and youngest entrepreneurs can apply for it because it has no asset level requirements. This makes it faster to process too. Plus in terms of creditworthiness, providers need that of the customer’s to whom the invoice is attached to not the company’s.
The Misconception – “Receivable value is lost in the process.”
Let’s review the process. First, the provider gives the company an advance of the chosen invoice’s value even before the owing customer pays for it. The amount is equivalent to at least eighty percent and as much as ninety-five percent of the total value. The remainder shall only be released and forwarded to the company once the customer has paid in full which is decreased by a predetermined fee.
The Misconception – “It’s expensive.”
As previously mentioned, single invoice finance only involves a predetermined fee which is agreed by both parties at the onset. Moreover, since this is a onetime transaction the fee also happens once. There are no lengthy contracts and obligations involved.
Receivables financing is one method used by a number of companies around the globe in order to draw out their needed funds. As its name suggests, the cash is driven from the entity’s own receivables. To some, this may still sound foreign but it has in fact already existed for years now. But what is it really and how does it work? Working Capital Partners is here to explain to us exactly that.
In receivables financing, companies actually hasten up the conversion or recognition of cash. Sales happen on credit and with this come the presence of customer invoices. It could however take time before cash is actually received as payment can come in periodical installments. Such funds may be needed by the entity for various reasons; funding operational expenses would be one. To do this they choose among two options: factoring or discounting.
With factoring, they sell the right to collect against the said invoices to a financial institution called a factor that in turn provides them with up to ninety five percent of the value of the customer invoices. The same proceeds to collect from the owing customers and once such has been completed they then will give the remaining five percent balance less any pre-agreed fees.
On the other hand, discounting is more akin to a loan only without interests and debts. What happens is the company uses the said invoices as collateral getting their value in advance from the financing institution. The company still proceeds in collecting from its owing customers and once this has been completed, they will then repay the financial institution plus nay pre-agreed fees.
To put it simply, it hastens and cuts short the turnover from receivables to cash. Receivables financing, both factoring and discounting also produces the same effects and benefits, to wit:
It improves the entity’s cash flows thereby moving hand in hand with sales.
It is fairly quick to use for as fast as twenty four hours and does not require the entity to provide financial statements or show their credit history and rate.
Locked up cash is freed and made accessible and available for use especially for emergency cases.
It does not affect the liabilities portion of the financial statements but rather only cause a decrease in trade receivables coupled with an equal increase in cash.
Thanks to Working Capital Partners, all these have been laid out clearly. So what are you planning to use? Factoring, discounting or both?
We all know very well that trying to borrow from factoring companies and succeeding is not an easy task. But then again, you go through it anyway as projects and plans need funding. Plus, the sad fact daunts us that cash cannot be readily available at all times. They can be tied up in various places, receivables and invoices being two of them.
Two of the many institutions which can provide you with your needed resources are banks and factoring companies. Money is very hard to earn and very easy to spend. Again, that’s another sad fact but we all have to deal with it. We must work our way around it and plan our actions carefully so as to make the right decisions. Also, there are cases when we need funds but do not have any at hand. Banks can provide you with loans but these loans have to be approved first. Meanwhile factoring can provide you the cash provided you give them your invoice in return.
You’ve probably known by now that there are tons and tons (if not a gazillion) number of rejected loan applications. So how do you succeed in getting your application stamped with an approval? Here are some useful tips to help you.
As always, do your research. It would be a very good idea to make a thorough research about your possible options to fund your needs as well as the available institutions from whom you are getting these funds from. Take this for example. There are banks that cater only to loans applied for by companies in a particular industry or sector. At the same time not all banks can provide for every loan applied for. Let’s say real estate. The amounts needed here can be high as we all know that properties are in no way cheap. Not all banks will say yes to loans that are in huge quantities.
Look at yourself. Do you have a good credit score at the present? Are you paying your dues right and on time? If your answer to both questions is a resounding yes then you’re a step ahead, otherwise don’t expect any bank to approve your loan.
Express your needs and payment plan preferences. It is important that you communicate well what your needs and expectations are as well as your planned mode or type of payment. It is true that your financial status and ability to pay will be highly questioned and looked into but having a good grade on those two won’t simply cut it. Business lending institutions will want to secure your invoice so they can make sure to get paid from your single invoice finance loan. In the first place, they won’t lend you if they get the idea that you won’t pay them right, on time and within the terms agreed upon.