How is invoice financing different from business loans?
Traditionally, business term loans have always been a popular option. However, invoice financing is a great alternative for businesses that rely on invoices and deal with cash flow issues because of late payments.
2020 has been a difficult year for most businesses, and as a result, maintaining and improving cash flow has become even bigger of a priority for many.
Traditionally, business term loans have always been a popular option. However, invoice financing is a great alternative for businesses who rely on invoices and deal with cash flow issues because of late payments.
First of all, what is invoice financing?
Invoices are created when a good or service is sold to a customer. Typically, invoices owed are paid from anywhere between 30 to 90 days, but sometimes situations, where you need to pay other expenses may arise, such as business expansion and making new hires. This can cause problems for your business and growth plans if you don’t have the finances on hand to handle these.
Invoice financing helps solve this issue by unlocking the money from unpaid invoices that would otherwise be tied up. Simply submit your invoice to a company such as Zetl, and after assessment, you’ll typically be contacted by the company about how much money you receive and the service fee. Once you agree to this amount, the money will be sent to your business bank account. It’s that simple!
So how is invoice financing different from fixed-term payments?
Less costs to pay in the long term
One of the benefits of invoice financing is that you only make repayments when the original invoice has been paid in full by your client. On the other hand, taking out a business loan generally involves a monthly interest payment or fixed-term repayments rather than a one-off cost per invoice.
In most cases, while the fixed monthly payment from a business loan may be lower each time you pay, the total cost may exceed that of the flat fee from invoice financing, making the latter a better option if you can afford the cost in one go.
Faster access to cash
The process of receiving funds from invoice financing is faster in comparison to business loans. In invoice financing, when your invoice is successfully approved, funds can arrive in your business bank account in as little as within a day, whereas the process takes longer in the case of business loans, making it less ideal when you need an immediate cash injection.
Invoice financing companies will also typically allow you to apply online with less conditional requirements in comparison to traditional loans, making it a much more convenient and efficient process.
Less documentation required
Applying for invoice financing typically does not require as much individual legal documentation or covenants for cash advances as business loans. While some documentation is nonetheless needed, this is usually basic and can be completed in one sitting, making it a convenient option during financial emergencies.
Lower commitment and risk involved
Business loans usually involve some form of guarantee, including corporate and personal assets. On the other hand, invoice financing is secured only against your invoices, making it more secure for you, as you don’t risk losing important assets in the event of default. The lack of long term commitments in invoice financing also gives you the flexibility to use it whenever necessary.
Invoice financing is a faster, less risky and potentially cheaper alternative to solving any cash flow problems your business may face. With simple, fast and flexible financing options from Zetl, you can spend less time worrying about your finances and more time focusing on growing your business. Sign up now for free to see how much you can receive with zero commitment!