Debunking 3 Major Invoice Finance Myths

Invoice finance is a great way to release cash into your business when you have outstanding invoices, instead of having to wait 30-60+ for your customers to pay them. This method lets you access money by using your accounts receivables as collateral for financing. No more weeks or months of waiting time to receive your money!

Invoice financing can be used for your company’s growth and expansion or to improve cash flow. But a few common misconceptions may prevent you from trying this fantastic financing method.  Don’t miss out on the opportunity to get an effective method of funding your business. Here is the truth behind the top three invoice finance myths and why it should be a trusted finance option for your business. Firstly, let’s break down exactly what invoice finance is.

The Truth: What is Invoice Finance?

Invoice finance allows your business to access cash sooner from unpaid invoices. Debtor finance providers will pay you up to 90% of your verified outstanding invoice value upfront. When your customer pays and the funds are received by your debtor finance provider, they’ll remit the remaining 10% minus a small fee to compensate for early funding. Your business can use this cash instantly to pay your bills, secure new suppliers or invest in growth opportunities.

An invoice finance facility acts as a revolving credit line backed by the invoices you issue to your customers. You can choose to draw down funds as often or as little as you like, only paying for what you use. Instead of waiting up to 90 days for a customer to pay you your invoice, your business can access the cash almost immediately. This is an excellent solution if your SME is suffering from late-paying customers or for those growing businesses that require ongoing cash flows for working capital.

Now, what is invoice finance NOT?

Myth #1: Only a Failing Company Uses Invoice Financing

The truth is, a business doesn’t have to be financially struggling to use invoice financing. Most growing businesses that understand the power of invoice finance use it as it ensures reliable working capital availability to continue to grow – even medium to large companies use it. Invoice finance is not a high cost funding source, it is used when required and is very competitive to overdraft and other debt rates. This shows that this method is a viable form of financing that helps businesses get working capital instantly.

“Invoice finance is scalable, your access to funding increases as your sales do.”

Invoice finance greatly beneficial largely because your business most likely has unpaid invoices as any point in time, so you need cash to fill working capital needs in order to continue to pay for expenses and order stock if you have a product company. Invoice financing can also help greatly with business growth. You can use it to prepare for busy seasons like holidays or preparing cash for a new project. Since invoice finance is scalable, your access to funding increases as your sales do. Successful, growing businesses love invoice finance for this reason – it expands alongside your business without holding it back!

Myth #2: Invoice Financing Gives a Bad Impression to Customers

It’s common to think that when a business is seeking a financing option, the company is failing financially. It’s natural to worry about getting a bad reputation from your customers. However, using invoice financing doesn’t have to affect your credibility at all. This is an old myth and in fact invoice finance is hardly ever used for failing businesses, as that was an old funding solution known as Factoring. Factoring is hardly ever used in Australia.

Most businesses these days use some sort of financing method to keep their business operations growing. It’s good business sense to look for a way to fund your company’s needs. If your business is large enough, you can choose a confidential invoice financing option so there will be no disclosure at all to your customers that you are financing your invoices, and for those that dont qualify for a confidential solution, invoice finance is now so well known in the market that debtors no longer even question the fact that invoice finance is being used (in a disclosed facility) as they themselves know the benefits of it.

Myth #3: Using Invoice Finance is Expensive

The flexibility and fast funding of invoice finance gave invoice finance a misconception that it must come at a premium price. However, it’s actually not as expensive as other business funding out there. Since businesses use invoice finance for business growth and to support cash flow, it’s a worthy alternative to bank loans. 

Invoice finance is secured by your outstanding invoices, and not all of the value of the unpaid invoice is lent. This means the provider has a form of asset security and is, therefore, willing to offer a very reasonable fee structure (relative to unsecured funding options) to invoice finance users. No property security is required for invoice finance.

Most invoice financings are transparent and you get to decide how long you need the invoice financing facility from the lender. Remember, if you don’t use (draw down on the funds), you often don’t pay (other than a small admin fee to keep the facility open), for a Selective Invoice Finance facility. There’ll be no additional charges or hidden fees that you think will make it costly for your business.
Plan your finances effectively and make more confident decisions about your money. Invoice financing may seem confusing at first, but OptiPay is here to support you when it comes to finding a suitable and beneficial financing solution. For more information about invoice finance and how the market perceives it, feel free to download the recent independent research that was conducted by East & Partners.  Unlock tomorrow’s cash today!

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