6 Ways Invoice Discounting Can Help Improve Your Business Cash Flow
Cash flow is a crucial factor for a business to thrive, regardless of the industry it operates in. Adequate inflow of cash allows you to ensure that you can keep your operations running seamlessly with Invoice Discounting. However, maintaining it can be difficult, especially if you:
- Offer services or products on credit
- Have longer cash conversion cycles
- Work in a seasonal industry
One way to tackle cash flow issues is by availing a business loan. However, taking a loan can be a challenge for new enterprises, businesses with a low credit rank, or companies that have just survived a slump.
While SME loans for new business is one option to help you tackle cash flow issues, another way you can try is invoice discounting. Also known as receivables discounting or bill discounting, it helps you get financing against your bill or invoice on a discounted basis.
This means if your bill is for $10,000 and due in 120 days, the lender may offer you a certain amount of it (such as $8,000) as an immediate cash advance by charging a nominal processing fee. When you receive the payment, you can return the loan of $8,000 to the lender.
This way, you get instant access to cash that would otherwise be tied up in invoices. To know how invoice discounting helps give your business a cash flow boost, read on.
Converts Receivables Into Cash via Invoice Discounting
When a business operates on credit invoices, i.e., receivables, a large portion of cash can get locked in. Since you don’t have the cash for goods already sold, restocking inventory can become challenging.
However, through invoice discounting, you can offer these invoices to a lender or service provider and can get access to the funds you are owed. With this type of financing solution, you can restock or pay your dues to ensure that your operations run smoothly.
Grants Quicker Access to Funds
With invoice discounting, the application process is straightforward and getting approval is quicker. This means that you can get relatively speedy access to funding and utilise it to leverage any opportunities for growth.
Similarly, acquiring SME loans for new business can also help you expand your working capital. With flexible repayment plans, this is also an ideal option to manage cash flow issues in your business.
This convenient access to funds can be especially beneficial when you run into an emergency that requires immediate cash. Through invoice discounting, you can ensure that you can tackle such exigencies without any delay to avoid an adverse effect on your business.
Helps Improve Efficiency
For any business to grow, efficiency is critical. One way to ensure efficiency and keep improving it is to maintain the right cash flow. When you have adequate funds, you don’t need to wait or compromise on taking action to address critical requirements.
This results in improved efficiency, which ultimately translates into better growth and revenue. Invoice discounting not only helps you get faster access to finance. But also helps you get it affordably, further helping your cash balance.
Offers Collateral-Free Financing
Some lending institutions offer affordable financing by asking you to put up business assets as collateral. In case you are unable to repay the loan, the lender can seize and sell them to recover the outstanding loan amount. This becomes a risky option.
With invoice discounting, you offer your invoices to the service provider and not an asset. This reduces the risk of losing your asset in case repayment becomes a challenge. Since it comes at an affordable cost, you can meet your needs more efficiently.
Invoice Discounting Comes With Zero Restrictions
Traditional financing options can come with restrictions on how and where you can use the funds. This can negatively impact your cash flow if you cannot use the acquired funds towards working capital.
This is not the case with invoice discounting, where you are free to funnel the funds as you want without any limitations on use. This flexibility enables you to inject more working capital into your business.
Helps Maintain Confidentiality
Confidentiality with regards to your business operations can greatly boost customer trust and growth. When you opt for invoice discounting, the service provider keeps the arrangement confidential, which enables you to maintain trust with your customers. This can help you boost your sales, which also helps in increasing the cash flow for your enterprise.
In addition to the above, a standout benefit of invoice discounting is that it enables you to become eligible for a higher credit amount. As your cash flow improves, it boosts your sales, resulting in better turnover. This allows you to qualify for a higher amount and more affordable credit. Ultimately, this allows you to enter into a beneficial cycle of facilitating growth through credit and sales.
However, keep in mind that the responsibility to get your invoice paid by your vendor or customer lies with you. The lender is not part of this equation, and it is up to you to ensure that you have clear payment terms that ensure your invoice payments are not delayed.
Invoice discounting is among the most efficient ways to maintain and improve the cash flow of your business. By enabling you to access immediate financing, it gives you the opportunity to infuse cash into your business without any hassles and at a nominal cost.
Due to its growing popularity, more and more institutions now offer invoice discounting. Be sure to compare and assess your options before choosing your service provider to get the best deal.
Vice President, İntelligent Design & Consultancy Ltd
Over 12 years of global & rich experience in Portfolio & Program Delivery Management in leading & managing IT Governance, PMO, IT Portfolio/Program, IT Products, IT service delivery management, Budget Management, and more.