Almost any kind of business can benefit from invoice financing, as any firm that raises invoices can potentially borrow against them. However, for some companies, invoice financing is particularly beneficial.
Invoice financing can be hugely beneficial for manufacturers. These businesses rarely have a stable workflow – they experience times where they are very busy, followed by quiet periods, so for them cash flow can pose a particular problem.
During quiet times, manufacturing companies can struggle to pay their basic overheads, like wages, and service bills. Borrowing against a few invoices is a good way to cover this shortfall.
A short-term loan can also help these companies to take advantage of special offers on raw materials. If a firm’s procurement manager sees a bargain, they can use invoice financing to get the cash they need to take advantage of this and buy those discounted raw materials before they sell out.
Cash raised in this way can also be used to buy raw materials to allow the firm to take on contracts they would otherwise not be able to. Firms often have to turn down work because they do not have enough cash to buy the raw materials for a big production run. By using invoice financing, this gap in funds can be filled.
Any company which sells seasonal goods can benefit from invoice financing. This kind of firm needs to buy goods in advance. The problem is that it will usually be several weeks, or even months before those goods start to make any money. This means that it can be hard for a firm to build up a good level of stock. Borrowing cash using invoice financing can give firms the cash they need to buy stock in advance.
Occasionally, the same is true of general retailers. Sometimes, they too want to buy stock in advance. General retailers may need to buy more stock in preparation for a busy time, such as the school holidays. Others, however, will simply want to buy more stock when their wholesaler offers them a discount.
Occasionally, even sole traders may want to borrow money. Take, for example, a freelance writer who is offered a big contract. To complete the work, they may need to employ help for a couple of weeks. Invoice financing can enable them to do this by providing the cash they need to contract and pay the third party writers.
With invoice financing, start-ups can borrow the relatively small sum of cash they may need to secure their first large contract. This could involve buying raw materials or taking on an additional member of staff.
Both start-ups and sole traders will find it practically impossible to borrow money from traditional lenders, but invoice financing can be a true lifeline. Of course, not all start-ups and sole traders will be able to borrow cash using their invoices but it often pays to look further into the possibility.