5 Different Types of Invoice Financing for Small Businesses

Nassau County invoice financing

When business owners are in a cash crunch, they find ways to fund their business operations. Fortunately, invoice financing, such as the one offered at Nassau County invoice financing, let business owners sell outstanding invoices to third-party companies at a discount in exchange for immediate funding. With that, they won’t have to wait for 45 to 90 days for their customers to pay them.

Related: 5 Common Cash Flow Problems That Invoice Factoring Can Solve

One of the main challenges that many businesses face are delayed or late payments. Businesses, too, have to keep up with their daily expenses. However, since the payments are coming in late, it’s challenging for them to meet their dues. For that reason, many seek invoice financing to get them the cash they need without having to wait for their customers to pay.

If you’re experiencing cash crunch because of unpaid invoices in your business, now is the best time to apply for invoice financing. Here are five different types of invoice financing for your business:

1. Invoice Factoring

Most people often use invoice factoring and invoice financing interchangeably, but both are different from one another. Other than selling your invoices and receiving immediate cash, invoice factoring companies are also in charge of collecting payments from your customers. While this may mean less work on your part, this can also affect your relationship with your customers. For many business owners, client relationships are very important, so they’re a bit wary about factoring companies handling business transactions.

However, it doesn’t necessarily mean that factoring is all bad. If you don’t have enough resources to make the payment collection yourself, factoring is, without doubt, the best way to go.

Related: Invoice Factoring 101: Everything You Need to Know About Small Business Factoring

2. Invoice Discounting

Unlike factoring, with invoice discounting (also known as ‘confidential invoice financing’) your customers don’t have to know you’re tapping into invoice financing. They are similar in the sense that they’re both short-term financing options and business owners borrow money against outstanding invoices. However, in invoice discounting, business owners remain in control over their sales ledger, payment collections, and invoice processing. Once they’re paid, they can then pay the invoice discounting company the money they owe plus the additional transaction fees.

This is a better option for businesses who prefer to transact with customers personally, without the help of a third party. Sometimes, preserving customer relationship is a top priority. For businesses with enough resources for payment collection, discounting is a good choice. Invoice discounting is a better option for large and well-established businesses with a solid customer base.

3. Spot Factoring

As the name suggests, spot factoring is a type of invoice financing where business owners can sell a single invoice, instead of the entire debt collection. Some clients only use spot factoring as a one-time service, while other business owners use it as an alternative financing solution when they need immediate working capital. While most business owners use spot factoring as needed, factoring companies treat every transaction with no expectation of future business. The costs of spot factoring are generally higher because business owners pay for control and convenience.

Usually, companies that choose spot factoring finance an invoice worth thousands of dollars. In this arrangement, the factoring company will also take charge of the payment collection. Once the invoice is paid, the spot factoring company collects their payment plus the fees and returns the remaining balance to the merchants.

4. Auctioning Online

Did you know that you can sell your invoices through auctions, too? Yes, it’s not just jewelry and precious things you can auction. Among the other types of invoice financing, online auctioning is a unique way to finance your invoice. With an online auction, you can also choose which invoices you want to finance, upload those invoices to an online platform, and then lenders can bid for them.

All the merchants have to do is to post their invoices online. Lenders then can look at it then proceed to make their bids. Whoever bids the highest, gets to finance the invoice.

5. Selective Invoice Financing

Selective factoring (also known as single invoice discounting) is a combination of traditional invoice factoring and spot factoring. It gives business owners more flexibility since it enables them to pick which invoices they are going to finance. They can finance one invoice or multiple invoices at once when they need to generate additional working capital. Selective invoice financing is also cheaper than having to finance every business invoice.

Why Apply for Nassau County Invoice Financing?

Invoice financing provides a lot of benefits for businesses. For one, Nassau County invoice financing streamlines the loan processing. This way, you won’t have to go through the hassle of and complexities of loan application. Aside from that, with the money you have upfront, you can pay for your business’ day to day operations, as well as fund growth opportunities and expansion. By selling your invoices to a reputable third-party company, you secure the success of your business in the most convenient way possible.

 

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