Applying for invoice financing can be a game-changer for businesses looking to improve cash flow and manage working capital efficiently through effective business funding. However, to maximise your chances of approval and secure the best terms, it is essential to approach the application process strategically. Here are the top tips to help you quickly secure approval and obtain the best rates on your invoice finance application.
Invoice Financing Overview
Invoice financing is a financial solution that allows businesses to leverage their outstanding invoices to access immediate working capital. By selling unpaid invoices to a financing company (invoice factoring), businesses can convert receivables into cash without waiting for the typical payment terms to elapse. Businesses can also finance invoices to improve cash flow by receiving a percentage of the invoice amount early, which helps bridge cash flow gaps.
Invoice financing improves cash flow, enabling businesses to cover operational expenses, pay suppliers, and invest in growth opportunities. Invoice financing is particularly beneficial for companies that offer credit terms to their customers and need to bridge the gap between issuing invoices and receiving payments.
Eligibility criteria
Eligibility criteria for invoice financing can vary depending on the financing company, but generally, the following are the usual requirements:
Business Type: Most invoice financing providers require that the business is a registered entity, such as a limited company, partnership, or sole proprietorship.
Age of Business: Some financiers prefer businesses that have been operating for a certain period, typically at least 6 months to 1 year.
Creditworthiness of Customers: The creditworthiness of your customers is a crucial factor, as financing companies want to ensure that the invoices they are purchasing or financing are likely to be paid.
Invoice Terms or Payment Terms: Invoices should be for completed goods or services provided on credit terms, usually with net payment terms of 30, 60, or 90 days.
Industry: Some invoice financiers specialise in or prefer certain industries over others. High-risk industries may face more stringent criteria or higher fees.
Company Financials: The latest year of company financials and 2 years of the guarantor’s NOA are required for the application.
Getting Your Invoice Finance Application Right
1. Understand Your Needs
Before applying, clearly define how much funding you need, why you need invoice financing, and how it will benefit your business. Identify the specific invoices you plan to finance and the loan amount of cash flow you require. Understanding your needs will help you communicate effectively with the financing company and select the right financing solution.
2. Choose the Right Invoice Financing Provider
Research and compare various invoice financing providers to find one that aligns with your business needs and industry. Look for providers with a strong reputation, transparent fee structures, and favorable terms. Reading reviews and seeking recommendations can also provide valuable insights into a provider’s reliability and customer service.
3. Prepare Accurate Financial Statements
Lenders will evaluate your financial health to assess the risk of providing financing. Ensure your financial statements are up-to-date, accurate, and well-organised. This includes your balance sheet, income statement, cash flow statement, and accounts receivable aging report. Accurate financial records demonstrate your business’s stability and reliability. Accurate financial statements are also crucial for securing an invoice financing loan, as they help unlock funds trapped in unpaid invoices and provide a cashflow-friendly working capital injection for SMEs.
4. Maintain a Healthy Accounts Receivable Ledger
A well-managed accounts receivable ledger is crucial for a successful application. Ensure your invoices are accurate, free of errors, and promptly issued. Track outstanding invoices diligently and follow up on late payments. A clean and organized ledger reflects positively on your business’s credit management practices.
Additionally, maintaining a healthy accounts receivable ledger can help unlock cash for other business needs through sales invoice financing.
5. Highlight Strong Customer Relationships
Lenders prefer financing invoices from reliable customers with good payment histories. Highlight your strong customer relationships and provide information about their creditworthiness. Demonstrating that your customers are financially stable and pay their invoices on time will increase your chances of approval.
6. Provide Detailed Invoice Information
When submitting your application, include detailed information about the invoices you wish to finance. This should include the invoice amount, due date, customer details, and any relevant terms and conditions. Providing comprehensive information helps the lender assess the risk and approve your application more quickly.
7. Be Transparent About Your Business And Its Cash Flow
Transparency is key to building trust with your financing partner. Be honest about your business’s financial situation, including any challenges you may be facing and what level of cash flow support your business may need. Lenders appreciate transparency and are more likely to work with you to find a suitable solution if they have a complete understanding of your business.
8. Demonstrate Consistent Revenue Streams
Showcasing a consistent revenue stream and stable cash flow can strengthen your application. Highlight any long-term contracts, repeat customers, and steady sales figures. This demonstrates that your business has reliable income sources, reducing the perceived risk for the lender.
9. Prepare for the Due Diligence Process
Lenders will conduct due diligence to verify the information provided in your application. Be prepared to answer questions and provide additional documentation if needed. Having your records organized and readily available can expedite this process and increase your chances of approval.
10. Seek Professional Advice
If you’re unsure about any aspect of the application process, consider seeking advice from financial advisors or accountants. They can provide guidance on preparing your financial statements, bank statements, optimising your accounts receivable management, and navigating the application process.
Get Started With InvoiceInterchange – Leading Invoice Financing Platform
InvoiceInterchange is an invoice financing provider that focuses on your business needs and will tailor a facility that suits your cash flow demand. Our advance rate is typically from 70 to 90 percent of the invoice value.
With our purpose-built platform, your business can receive funding within hours and leave you with more time to focus on growing your business.
Application Process
Invoice financing with InvoiceInterchange is a simple and straightforward process. For users of the Xero accounting platform, all you need to do is connect your Xero account via our platform, and you will receive an indicative approval within minutes. If you’re not using Xero, you can apply through our online application form, and one of our team members will get in touch with you to discuss your business needs. This will help us tailor invoice financing products to suit your specific requirements.
Once your application is approved and the contracts are signed, we will start the account setup process. This may involve notifying your customer about the factoring arrangement and setting up relevant bank account access to receive invoice payments.
The drawdown process takes minutes. Simply upload your invoice(s) that you wish to finance, together with supporting documents such as purchase order, delivery order, and contract. Upon successful verification, funds will be in your business bank account within 24 hours.
