Sometimes your small or midsize B2B clients experience cash-flow delays. They’ve got money due in from their customers — with invoices to prove it — but their ability to do business with you is curtailed by timing issues: they simply don’t have the cash on hand to buy your products or services while meeting other vital obligations. This can of course have a negative effect on your bottom line.
As a business owner or executive, you may pride yourself on knowing your customers’ needs and preferences, and providing the kind of service they want and need. But, however comfortable, friendly, and in-tune you may be with your customers, you’re probably up against competitors who can help your customers through cash-flow dry spells by means of invoice financing. Meanwhile, those of your customers who find themselves with cash-flow constraints stemming from billing-cycle issues are left to struggle to compete with firms that, for one reason or another, enjoy deeper capital reserves.
Until you can provide invoice financing to them, neither your company nor your customers are competing on an even field, and whether you know it or not, you’re probably losing business as a result.
SMEs are engines of growth for invoice financing (and vice versa), come what may
Strength and relative stability in the US stock market since mid 2012 has proved a boon to many businesses, pushing invoice factoring to the sidelines as bigger companies take advantage of easy access to bank-originated lines of credit. At the same time the largest publicly-traded companies look first to internal resources to bridge cash-flow gaps. As a result, the invoice-factoring market grew just 0.4% between 2015 and 2021, says IBISWorld.
What comes next for the space is anyone’s guess, says Dmitry Voronenko, a lending-technology pioneer and CEO of TurnKey Lender. “For traded companies, the possibility of buoyant corporate profits may keep a lid on dramatic growth for invoice financing through 2025 — unless impacts of the coronavirus pandemic put pressure on those outcomes,” he explains. “But invoice factoring is likely to grow in importance for small and mid-size enterprises no matter what the stock market or the broad economy does in the next few years.”
Besides helping your B2B customers, providing payment options that include invoice financing as a form of short-term borrowing collateralized by their accounts receivable, can be at least as beneficial to your company. Here are five ways this happens.
You have your own bills to pay as well. If you have to wait until your customers pay the invoices you issue, you may get jammed up with your own vendors, triggering additional interest charges and late fees. Getting paid via invoice financing means your own cash flow remains steady, allowing you to meet your obligations to your vendors, lenders, and other businesses your enterprise relies on.
2. Better credit rating
Again, invoice financing improves the consistency of cash flow — and that goes for you as much as for your business customers. In turn, your ability to meet your expenses as they arise translate to an improved credit score for your business, and, in some circumstances, for you personally.
Having cash on hand means you can “afford” to wrangle for better terms, and take advantage of discounts for paying in cash or buying in bulk.
4. Credit-risk reduction
Whether you employ a factoring company or use software to do it in-house, the credit checks on your company’s customers provide decreases the risk of default.
5. Lower overhead
Not least, invoice factoring streamlines the process and reduces the time, money, and work-hours associated with old-school approaches to generating, tracking, and receiving payments.
While invoice-factoring companies — some of them attached to big-name banks — provide an outsourced option for companies, cloud-based options that balance ease of use with advanced functionality have come to fore in recent years.
Among the benefits of this in-house software approach to invoice factoring are:
- Intuitive functionality that’s accessible anywhere there’s an internet connection
- Artificial intelligence that powers advanced credit-scoring and ensures applications are processed in seconds
- Credit-scoring backed by machine learning further reduces credit risk
- Alternative credit-scoring options make sure no low-risk customers are overlooked
- Deep configurability without having to change any source coding
- White-labeling to maintain branding internally and externally
- Preconfigured and API-enabled integrations for frictionless processes automation
- Automated debt collection processes for scalability
- Distinct work interfaces for different employee and manager types
Ability to save on fees that would otherwise go to an outsourced (as opposed to cloud-based) invoice-factoring processor — which could amount to 3% or more in addition to financing fees.
“We’re getting past the point where the cloud-based approach to invoice factoring is superseding traditional third-party approaches,” says TurnKey Lender’s Voronenko. “It’s not just that our approach is faster, more reliable, and characterized by more consistent outcomes. It’s that we train and support our customers’ staff members, and assist with any complex issues that arise.”
Adds Voronenko: “We don’t make cookie cutters, we make a universal tool for cloud-based lending, leasing, and factoring that’s backed by a rigorously consultative approach, which is in turn based on a thorough understanding of your business needs, challenges, and opportunities.”