HOW TO USE INVOICE DISCOUNTING TO REDUCE CASH FLOW SQUEEZE (May 16, 2017)
Businesses experiencing a cash flow squeeze (usually due to growth or slow paying customers), can sell some of their invoices to an Invoice Discounting firm to quicken up cash flow. One such firm is Interface Financial NZ.
The firm advances most of the invoice amount usually 80-90% – after checking out the credit-worthiness of the billed customer and the validity of the invoice. Once the bill is settled by the customer, the remaining invoice balance, less the discount fee, is paid across as well.
Businesses that use Invoice Discounting like it because they get paid quicker, rather than waiting the usual 30 or 60 days for payment. After sending an invoice to an Invoice Discounting firm, a business usually will have money in its hands within 24-48 hours.
Some businesses use Invoice Discounting for their start-up working capital . Whereas banks focus on a business’s creditworthiness and the equity in the business in considering whether to make a loan, Invoice Discounting firms look largely at the financial soundness of a business’s customers. As a result, firms with a limited history may be able to sell their invoices and have access to greater working capital.
Invoice Discounting is not suited to businesses who send out thousands of small denomination invoices, but works well where there are several large customer accounts whose weekly or monthly billing, paid early, can represent a meaningful improvement in the cash flow.
Invoice Discounting is a very flexible cash flow tool because it’s an on call facility that allows the client to simply use the service as and when they need to without any financial tie-in so it’s especially helpful for seasonal trends, growth spurts, or just covering the unexpected. The client can also remain in control of the customer relationship as well, ensuring customer relationships are well attended to.