The invoice financing process is quite simple. Once you have agreed to work with a financing company and discussed terms, you will continue to provide the goods or services to your customers and generate the invoice. You’ll be required to create that invoice immediately and send it to the client for processing.
You will then send the invoice details to the lender as part of a streamlined process, and they will forward a percentage of the invoice's face value to you. The amount the company sends will vary depending on the lender, risk criteria, and the terms you agreed to at the start. Typically, you will receive the funding within 48 hours of input, but the terms may vary.
Once you have received the funding, you are free to use it for cash flow or business purposes. You will then wait to receive the payment from your customers in accordance with the terms and conditions mentioned on your invoice.
As soon as the customer pays you, you will reimburse the invoice financing lender by sending the balance of what is due. You’ll be able to retain the portion of that invoice that wasn’t included in the initial agreement. Bear in mind that there will also be a fee to pay the service provider.
In addition to the service fee, a lender will also charge you interest on the amount you borrow. You will need to factor these costs into your calculations before you know if invoice financing is the right choice. The interest charge will vary according to the provider, but you should be able to factor these into your cash flow projections.
Remember, it is in your interest to chase any customer who does not pay according to the agreed terms. After all, you will pay interest to the invoice financing company for each day they are late. Make sure that your payment terms and conditions are very clear, and be prepared to call or email the client as soon as they default.
