It’s no secret that traditional routes to credit have, to a large extent, been clamped firmly shut for all kinds of companies, big and small, in recent years. Yet, as we all know, cash flow concerns can plague companies across all industries, including those with every reason to consider the fundamentals of their business to be perfectly sound. Thankfully, if your business is struggling to keep pace with its outgoing obligations then there are financing options available on the basis of invoices you’ve issued to client companies.
1. Invoice Discounting
The easiest way to leverage funding for your company on the basis of outstanding invoices is to use invoice factoring, which is quite a simple process of raising funds through your expected earnings. Invoice discounting is preferred by larger companies who can afford to oversee credit controls and debt collections on their own behalf. Lenders may audit your organisation when invoice discounting is being used to raise cash but your customer companies are not made aware that such an arrangement is in place.
Unlike invoice discounting, factoring as a means to generate cash entails a third party taking control of your unpaid invoices with a view to seeing them paid in full. Credit control and debt collection processes are outsourced, which tends to help smaller businesses who don’t have the infrastructure in place to cover these aspects themselves.
3. Selective Invoice Factoring
A third means of raising funds is selective invoice factoring, otherwise referred to as ‘spot factoring’. This route to finance allows a company to decide which of its invoices they would like to sell in return for funds upfront and at which point in time. The option is popular among businesses that typically have a small number of relatively large invoices outstanding at any one time. Selective invoice factoring can also be very helpful to companies whose income is usually generated primarily during one particular time of year.
4. Online Invoice Auctions
The process of auctioning invoices to approved investors is becoming an increasingly common and generally accepted one. There are websites dedicated to the practice and to ensuring agreements reached are beneficial to all parties involved. Businesses offering to sell their invoices in this fashion can set limits on the scale of fees they are willing to pay and the details of the deal can be kept confidential from your clients.
The process of raising cash by leveraging expected income from invoices outstanding is not a suitable solution for every business. However, there are instances in which these alternative means of accessing cash can offer a vital lifeline for companies with financial concerns that might otherwise mean going out of business or facing a spiral of uncontrollable issues.