Cash Flow and Working Capital Financing

All businesses require financing.  You are either financed with capital put into the business by shareholders or external sources.  Quite often it will be a combination of both.  Businesses will invariably require additional working capital to keep their business operations running smoothly as well as additional working capital to grow their business. Therefore all businesses will have a perpetual need for some form of external financing.    Let’s explore more on the available working capital financing solutions for SMEs.


Financial Products

There are in general three types of financial products available in the market to help you improve your working capital and ease your cash flow. Needless to say it is crucial to select an appropriate product which is suitable for your particular business, ensuring that it will resolve your cash flow requirement seamlessly and efficiently and at the lowest cost to the business.

There are in general 3 types of financing available for businesses.  A line of Credit, Asset based loan or Invoice Financing.

Line of credit and Asset based loans

Line of credit and Asset based loans are suited for well established companies where they have a long performance track record, significant assets and positive cash flow and strong balance sheet.

For young and rapidly growing companies with little assets and weak balance sheet, invoice financing is the most suitable.  Companies that already have Line of credit or loans can still complement their needs through invoice discounting, using it to alleviate them over periods of exceptional or seasonally high cash requirements.


Invoice Financing

This article will discuss more in depth the merits and demerits of Invoice Financing, a smart working capital financing product which is growing in popularity as a vehicle to buffer up working capital.

What is invoice financing?  It is the selling of a business trade receivable at a discount to a third party in return for immediate cash.

The profile of invoice financing companies has undergone a huge change in this era of the Internet.

It used to be provided by banks and large commercial firms but nowadays efficient and nimble Fintechs are capturing a huge market share.  Fintechs have been able to break the incumbent strangle hold by being more efficient, nimble and having the ability to reach and harness the financial power of the general population and, with that, able to bring down the cost of invoice financing.


The benefits of Invoice Financing

1. Simple and Faster

For a start the application process is much simpler and faster than if you want to apply for a line of credit or a loan. The main consideration is your client’s credit worthiness.  The application can be processed within days and as fast as 24 hours as against weeks for the other types of loans.


2. Flexibility

Businesses have a choice to finance its entire ledger. This will simplify your operations as all collections, overdue debt collection and legal proceeding costs to recover bad debts will be borne by the financier.

Otherwise businesses can just choose flexibility. They decide which invoice to sell and when to sell it to optimise its cash flow.

Businesses will also have a choice of disclosed or undisclosed invoice financing.

Undisclosed would mean your clients are not informed of the invoice being traded and you maintain and control business relation with clients.


3. Cost Effective

Finally the great benefit of invoice trading is that the more you trade your invoices the more the cost of finance will come down as you develop a solid track record and reputation and the financiers accord you with a lower risk rating.

Simple Online Invoice Finance with InvoiceInterchange

If you want to be have a good control of your finances, get in touch with us today and InvoiceInterchange will discuss how we can work together to improve your cash flow and you can then continually focus on growing your business.


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