What is invoice financing and how can I get started?

There comes a time in the life of every small business when cash gets a little tight and decision makers are forced to look for outside sources of funding. While a lot of small business owners might hop on the chance to secure a loan, not everyone is comfortable with the prospect of taking on debt when they don’t need to. For these risk-averse owners, invoice financing is a much more sensible funding option.

Although you may never have heard of this type of small business financing, it can be a valuable solution for your small business. As the name implies, invoice financing allows you to obtain an advance against the value of your business’s unpaid invoices. Here’s a closer look at how it works and what situations it’s useful for.

Did you know small businesses have $825 billion in unpaid invoices?

What is invoice financing?

Quite simply, invoice financing allows you to borrow against your uncollected receivables. Instead of letting unpaid invoices collect dust and hinder your business, you can use an invoice financing service to advance payments on outstanding invoices. You then repay the advance, plus a small fee, within a certain time period (usually 12 weeks or so).

The terms “invoice financing” and “invoice factoring” are often used synonymously, though they’re not the same thing. Factoring requires small businesses to sell their unpaid invoices to a third party at a hefty discount. Making matters worse, customers end up paying the factoring company, not your business, which can be slightly embarrassing, to say the least.

Invoice financing allows small business owners to reclaim control of their cash flow. Instead of scrambling to put together money to pay bills each month, they get the peace of mind that comes with knowing funds are only just a click of the mouse or tap of the finger away.

In addition to helping small business owners pay regular operating expenses, invoice financing services can also give companies enough padding to develop new products; launch new marketing initiatives; buy new equipment and technology; open additional locations; and remodel their storefronts, restaurants, and offices, among other things.

Where does small business invoice financing add value?

There are many situations where invoice financing can help. Invoice financing works best for small businesses that don’t get paid right away, but instead invoice their customers and wait to receive payment in 30, 60 or 90 days (or even later).

Sometimes, waiting for those customers to pay you can really put a crimp in your cash flow. After-all, if more money is flowing out than flowing in, you are setting yourself up for a cash crunch; which is why many small businesses wind up out of business. Theoretically, your business is doing well because you have lots of outstanding invoices, but in reality, you don’t have the cash on hand to handle immediate expenses such as payroll and inventory. This is where invoice financing comes in handy.

Invoice financing can be useful for very small businesses, and even freelancers from which an unpaid invoice can make the difference between paying that month’s mortgage or not. However, it’s also valuable for businesses with big clients that frequently are slow to pay, such as government agencies or corporations that may have a lot of red tape involved in the payment process.

Invoice financing works best as a short-term financing option that can provide the working capital you need to get over the hump until you get paid. Because you get your money quickly, invoice financing is an ideal solution when an unexpected cash crunch hits and you can’t wait for a traditional bank loan. It’s also a great solution when you don’t need a small business loan, just a little bit of extra cash.

LVRG Funding has strategically partnered with Fundbox, which provides the easiest and most transparent financial solution for all your business’ outstanding invoice cash flow gaps.

How can I get started with invoice financing?

Fundbox makes invoice financing easier than ever before. Creating an account is free and simple: There’s no long approval process or mountain of paperwork to fill out. Next, click to connect your accounting platform to Fundbox. Once approved, you’ll see your available invoices in your Fundbox dashboard. Select which ones you want to advance, and voila, the funds are deposited in your bank account in as soon as one business day. You then have either 12 or 24 weeks—your choice—to repay the advance, plus a small fee. Repay early, and the remaining fees are waived.

Need money for your small business and have a stack of unpaid invoices piling up? Give Fundbox a try. Sign up for free here.