A guide to invoice financing

couple looking at an invoice they owe

As a small business owner, you depend on cash flowing into your business to keep your business running smoothly. Cash flow is king, and it can be incredibly frustrating when you have clients that owe you money, but no money in your bank account. 

Unfortunately, late payment on invoices is a common problem for small businesses in Australia and New Zealand. In fact, one study from accounting firm Xero discovered that 30% of invoices for small businesses were paid more than seven days late. 

The result of this? Nearly all business owners have considered applying for a loan just to fill in the gaps until clients pay. But the process of applying for a loan is time-consuming and cumbersome, and results in more debt for your business. 

However there’s another option – ‘invoice financing’ can get money into your business today, without the long-term loan or commitment.

What is invoice financing?
Benefits
Why is it better than a bank loan?
Choosing a provider

What is invoice financing? 

Invoice financing is a fast, trustworthy, and simple alternative to traditional bank lending. 

Essentially, invoice financing enables you to borrow money against the value of customer invoices. 

When you use invoice financing, you “sell” your invoices to the invoice financing provider, which then immediately pays you. When your client does pay, you repay the provider along with a small fee. 

There are three main types of invoice financing to choose from: 

  • Discounting: When you use this service, you sell all your invoices to the provider in exchange for immediate cash. Your clients won’t know you needed to access the financing option. You’ll pay the provider back once your client pays you, along with a fee. 
  • Factoring: Invoice factoring means that you’ll sell your invoices and receive cash immediately. The company who purchased the invoices from you becomes responsible for collecting payments from your clients. This can be a good option if you have a lot of unpaid invoices and lack the resources to pursue collections.
  • Selective Invoice Discounting: This type of invoice financing is also the most flexible option, allowing you to choose which invoices to finance — either several or just one at a time, and whenever you need it. Plus your clients won’t know any different.

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Benefits

Invoice financing is without a doubt the easiest and most accessible solution for short-term financing.

If you want to know why it’s a fast growing source of cash flow, here are some of the major benefits: 

  • Quick access to cash. That means you’ll get access to working capital fast, enabling you to pay your vendors and employees, avoid late fees, and run your business. 
  • Opportunity for quicker growth in your business. You can focus on growing your company because you now have access to hard-earned funds. You don’t have to put your expansion plans on hold while you wait to collect invoices. As a bonus, you’ll also be able to take on bigger projects without worrying about when you’ll get paid.
  • Easy to link to accounting software. Your provider will automatically track payments and fees against the invoice that’s being financed. Essentially, the bookkeeping work takes care of itself.  

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Why is it better than a bank loan?

Compared to a bank loan, invoice financing is faster, easier, and cheaper all around. Applying for a bank loan can take weeks/months, during which you’ll need to fill out mountains of paperwork and face strict approval hurdles. In a best-case scenario, the bank funds your loan, but you now have fixed-term repayments that can also present another kind of cash flow problem. 

When you use invoice financing, the approval process takes just a few minutes — and you could receive money the same day. It’s also much more flexible as you only borrow when you need it.

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Choosing a provider

Getting cash for your business shouldn’t be a deal with the devil.  Use invoice financing to get instant access to your money, rather than waiting for clients to pay.  Be prepared for unexpected expenses or grow your business on your timetable.

We encourage you to search for a provider that suits your business needs.  You can access FundTap with a special offer for Beany clients.  Sign up with the discount code “beany” and get a $200 discount.

The process with FundTap is easier than ever. You can create an account and submit your first invoice in minutes. Here’s an overview of how it works: 

  1. Integrate your account with your accounting software such as Xero, Quickbooks, and more.
  2. Select one or more of your unpaid invoices. 
  3. Submit your invoice for approval, and within hours you can receive the money into your bank account.
  4. Once your customer pays, you automatically repay FundTap via direct debit.

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