Alternative Invoice Financing For Small Business Enterprises

Alternative Invoice Financing For Small Business Enterprises

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  • Opening Intro -

    Picture this. You have just turned that great idea of yours into a company and its bringing in exponentially growing sales.

    So for you to meet the increasing demand for your services, you hire more staff, invest in better systems and increase your fleet for better logistics.

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This is good right? Right. Just a teeny weeny issue you had not considered though, most of your sales are tied in credit. You see, as a new business, you try as much as possible to convince new customers to put their trust in your products which they’ve never used. And in the process, you become lenient on the mode of payment that you offer.

Before you know it, most of your initial clients are on a 30-days credit. How do you finance your operations for a month without working capital? Do you run to a bank for a loan? Your credit score is still too low. So that’s a closed door for you.

There is one option that is always available to you. Use your debtor’s ageing to get short-term financing.

A Healthy Debtor’s Ageing

A healthy debtor’s ageing list is the most natural collateral that a small business has to access financing. It must show that:

  • Your customers are paying on time.
  • You have been doing business for at least three consecutive months.
  • The volume of sales can support the amount of financing you need.
  • You have a proper mechanism for following up overdue debts.

Having a debtors ageing that shows you are still trading with customers who owe you up to three months in arrears raises a red flag.

Invoice Financing For Small Business Enterprises – A Short Cut To Short-Term Financing

The advantage you have with invoice financing is that you can access money from both mainstream financial institutions like banks and micro-finance institutions, and private investors (also called angels) and venture capitalists. This gives you the discretion you need as a small business still finding your way through the loops.

Also, your new assets are free from debt and can provide you with leverage for future long-term financing. The interest charged on invoice financing is usually low.

Conclusion

Remember, invoice financing should be a short-term solution to getting additional working capital as you manage the first critical years in operation. In the long term, you should always maintain at least six months worth of working capital as your float at the bank. This will allow you to take advantage of opportunities that come your way.

Do you need invoice financing? Check if you meet the criteria for a healthy debtor’s ageing. Talk to your financial adviser on the various institutions that can extend you the invoice financing you need.

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