The Small Business Administration recently reported that 99% of all U.S. enterprises are small businesses.

Many of them find it challenging to wait for 30, 60, or 90+ days to receive payments for their goods and services. If you are a small business CEO or Accounts Receivables professional looking for increased control and predictability over your cash flow — invoice financing may be right for you.

Business Handshake
Business Handshake

In remembrance of National Small Business Week, we’ve broken down some basics of invoice financing to demystify the process and explain how you can easily finance your initiatives faster using the cash you’ve already earned vs. increasing your debts. Let’s get started…

What is invoice financing?

Invoice financing, also termed ‘factoring’, ‘receivables financing’, and ‘payroll funding’ is the process of selling your invoices or unbilled receivables to a lending partner for expedited working capital at a nominal fee, usually 1–2%. This provides businesses numerous benefits, including the ability to act on immediate needs or competitive strategies rather than waiting for funds to come in.

Why is invoice financing useful?

Invoice financing eliminates the cash flow gap created when you perform a service or deliver a good that is not paid for immediately. It’s common practice for customers to take advantage of payment terms and delay paying until or after the due date. After all, having working capital on-hand is as essential to them as it is to you. Financing your receivables provides direct access to cash today for a stronger business tomorrow.

Who uses invoice financing?

Just about any industry can be supported by invoice financing services; however, not every business model can qualify. Business-to-business companies that invoice customers in industries like staffing, manufacturing, trucking, and wholesale frequently encounter issues qualifying for bank financing, so they often turn to alternative financing options. This can be due to limited collateral, insufficient operating history, or obstacles related to credit. Businesses that fall into these categories are ideal candidates for invoice financing solutions.

How does invoice financing work?

Invoice financing may seem complex, but it can be explained in six easy-to-follow steps:

  1. Your company provides goods or services to a customer.
  2. An invoice generates for the transaction.
  3. You submit the invoice to LSQ.
  4. LSQ advances you a percentage of the invoice value (e.g. 90%).
  5. Your customer pays LSQ for the invoice.
  6. LSQ then pays you the remaining balance, minus a service fee.

We hope that this post helps shed some light on the oftentimes misunderstood practice of invoice financing. Industry-leading providers like LSQ are revolutionizing receivables management by providing business owners with more than just funding, adding value with state-of-the-art technology, same-day working capital, and expert back office services. For more information about how you can leverage your invoices to quickly finance business needs, visit LSQ’s website at https://www.lsq.com/.