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calendar    Feb 15, 2024

Invoice Financing for Small Businesses: A Key to Unlocking Working Capital

What is invoice finance?

Invoice finance is a type of financing that enables small businesses to leverage the value of customer invoices before they’re paid in full. This method provides immediate cash flow, critical for covering operational costs, taking advantage of growth opportunities, and offsetting delays caused by late customer payments.

In this process, a business sells its outstanding invoices to a finance company at a discount. The company advances a significant portion of the invoice value upfront. After the customer pays the invoice, the business receives the remainder minus any fees from the financing company.

Resolve is a champion of invoice financing solutions, especially for B2B companies. It offers 100% cash advance rates on invoices and the flexibility you need to grow your business, boosting cash flow and supporting financial stability. The access to cash and flexibility of its straightforward services make Resolve an excellent choice for companies seeking to make the most of their existing business activity.

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How does invoice finance work?

Invoice finance turns outstanding invoices into immediate working capital. A small business generates an invoice when it sells a product or service. Instead of waiting days, weeks, or even months for the customer to pay, the business can sell this invoice to a finance company like Resolve.

  1. Invoice Issuance: A business issues an invoice to a customer who purchased goods or services.
  2. Invoice Sale: The business sells the invoice to Resolve, which evaluates it and determines appropriate funding.
  3. Funding: Resolve provides the business with an upfront cash advance of up to 100% of the invoice value, providing an immediate cash injection.
  4. Payment Collection: Resolve is responsible for collecting the invoice payment from the customer.
  5. Final Settlement: Resolve transfers any remaining balance to the business once the customer pays the invoice.

This model benefits businesses by providing them with the liquidity they need to operate smoothly without the cash flow interruptions that late payments can cause. It's a powerful tool for managing financial operations, particularly for businesses that experience long billing cycles or that need to fill a gap between providing services and receiving payments.

Resolve's approach to invoice finance stands out because of its commitment to simplicity and support for B2B companies. By offering 100% advances on invoices for businesses who are issuing the invoice to customers, Resolve eliminates the uncertainty and waiting periods often associated with other financing options. This ensures that businesses have immediate access to the funds they need to cover operational costs, invest in new opportunities, and maintain a steady cash flow, making it a valuable partner for small businesses aiming to leverage their accounts receivable for financial growth.

Is it the same as getting an advance on invoices?

Invoice financing and receiving an advance on invoices are similar – both provide immediate access to funds from outstanding invoices. However, there are critical distinctions between these solutions. 

Invoice financing generally involves a financial institution providing a business with a percentage of the value of its accounts receivable. The company then pays back this advance when the customer pays the invoice, plus any fees and interest. 

Alternatively, getting an advance on invoices typically refers to a more specific type of invoice financing known as invoice factoring. In this arrangement, a business sells an invoice to a factoring company at a discount. The factoring company then advances a large portion of the invoice value to the business upfront. Once the customer pays the invoice, the factoring company remits the remaining balance to the business minus a processing fee.

Both methods aim to unlock working capital in unpaid invoices, but the mechanics behind each are slightly different.

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What is an invoice financing loan?

An invoice financing loan allows businesses to borrow against the value of their outstanding invoices. This type of loan provides immediate cash flow based on unpaid invoices rather than waiting for customers to pay. Businesses apply with a lender who assesses the invoices and advances a portion of their value, typically between 70% and 90%. 

This financing option is particularly suitable for small businesses facing cash flow issues due to delayed payments. It relies on the creditworthiness of the invoiced customers, offering an accessible solution even for companies that might struggle to secure traditional bank loans. Once the customer pays the invoice, the business repays the loan plus fees, using the remaining amount to cover operational needs. This approach offers flexibility and scalability, aligning financing with the business's sales and growth.

What are invoice finance lenders?

Invoice finance lenders are financial institutions or specialized firms that provide businesses with upfront cash based on their outstanding invoices. They assess a company's invoice characteristics and customer creditworthiness to offer an advance, typically covering a significant portion of the invoice value.

These lenders cater to small businesses seeking to improve cash flow without the delay of traditional payment terms. Unlike conventional banks, invoice finance lenders focus on the receivables as collateral, making this financing more accessible to businesses with strong sales that might have less traditional collateral or a bad credit score.

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How do invoice financing companies work?

Invoice financing companies provide businesses with an advance on their outstanding invoices, offering a practical solution to cash flow gaps. These companies assess the value of a business's unpaid invoices and advance a portion (usually between 70% and 90%) of the invoices' total value. An advance helps companies cover operational costs, invest in growth, or manage cash flow without waiting for customers to pay.

Resolve offers services beyond what you find in traditional invoice financing solutions. It provides businesses with the immediate capital they need through advances on invoices while also offering non-recourse financing. Qualified customers also enjoy 100% advance rates on invoices through Resolve, meaning businesses can access the entire value of their invoices upfront without waiting for customer payment.

Resolve’s comprehensive automated invoicing and collections services ease the administrative burden on businesses by conducting discreet credit checks on customers and advising businesses on credit extension and optimal net terms. This holistic approach provides immediate financial relief for businesses and supports long-term financial health and growth for B2B companies.

By focusing on B2B transactions and offering a suite of complimentary services, Resolve moves beyond traditional invoice financing. Its approach simplifies the financing process and provides businesses with tools and resources to manage their receivables more effectively, making it a valuable partner for small businesses looking to optimize their cash flow and expand their operations.

Types of invoice financing

Invoice financing can be broken down into two main categories:

Invoice factoring companies allow businesses to sell their outstanding invoices to a factoring company at a discount, typically between 70% and 90%. Once the customer pays the invoice, the factoring company pays the remaining balance to the business minus a fee.

Invoice discounting allows businesses to retain control over their sales ledger and collections process by advancing a portion of the invoice values and requiring the company to pay back this advance plus fees when customers pay their invoices.

Invoice financing examples

Traditional Invoice Factoring: A manufacturing company sells $100,000 worth of invoices to a factoring company. The factoring company advances 80% ($80,000) immediately. Once the invoices are paid, the factoring company pays the remaining 20% ($20,000) minus a 3% transaction fee ($3,000), resulting in a final payment of $17,000 to the manufacturing company.

Invoice Discounting for a Tech Firm: A tech firm uses invoice discounting for $50,000 of invoices. The lender advances 90% ($45,000). The firm manages collections and, upon receiving payment from customers, repays the advance plus a 2% fee ($1,000), keeping control over customer relationships.

Resolve's Model: A B2B service provider has outstanding invoices worth $150,000. Resolve assesses the customers' creditworthiness and agrees to advance the total of $150,000. The service provider gets immediate access to the funds, improving their cash flow without the typical deductions seen in traditional factoring or discounting. Resolve also offers non-recourse financing, reducing the risk to businesses if a customer fails to pay.

How to qualify for invoice financing

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Generally, businesses need to present outstanding invoices to qualify, as lenders must determine the likelihood of invoice payment. The company's revenue and operational history is often scrutinized, alongside checks for legal and tax compliance issues. This process safeguards lenders and borrowers but can introduce complexity and potential delays. 

Conversely, Resolve streamlines the invoice financing approval process by focusing on creditworthy customers rather than intricate financial details during the application process. Its model, especially with offerings like non-recourse financing and 100% advance rates for eligible invoices, is designed to minimize the common pain points associated with traditional invoice financing. Resolve's approach accelerates the funding process and reduces the administrative burden on businesses.

Final thoughts

Invoice financing presents a viable pathway for small businesses to unlock essential working capital. It ensures they can manage cash flow, cover operational costs, and invest in growth opportunities without the wait tied to traditional payment terms. Resolve’s 100% advances, non-recourse options, and simplified process make it an ideal partner for B2B businesses. 

Beyond invoice financing, Resolve provides comprehensive services like automated invoicing and discreet credit checks designed to support and enhance business operations. For streamlined financial solutions and growth support, consider how Resolve can benefit your business. Explore Resolve's offerings and take a step towards optimizing your cash flow and growth potential today.




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