Know Your Invoice may sound unfamiliar at first, but it won’t be the same after reading this article. Most of us have barely heard the phrase “know your customer.” Many people have heard the phrase “know your business”. Both are very common terms in the financial world. Before we go any further, let’s take a quick look at these terms.
Know Your Invoice
In this way, A uses its unpaid invoices as financial collateral to meet its liquidity needs. Based on the above, know your invoice finance seems like a very convenient and viable form of short term loan or bank overdraft for both the company and the lender, but unfortunately it is not. According to 2022 statistics, the size of the global financial market is US$783.3 billion, but invoice finance is only 0.051% of it, that is, US$4 billion. Considering invoices are the most commonly used business document, this is a very low number. What is the reason for so little invoice funding?
The reason is very simple. The lending institution requires some form of guarantee or guarantee on the loan amount. This guarantee is usually provided by a tangible asset as collateral from the borrower. This includes, but is not limited to, land, buildings, factories and machinery, shares, or some bonds or deeds.
A sells goods and services to B. Payment for the transaction will take him 60 days from the date of delivery. A bills B for this. Now A takes this invoice to bank/financial institution C and pledges this invoice to them. C pays A a large outstanding bill to A and keeps the bill. When the invoice becomes due, B transfers the payment to A.
In the case of invoice financing, the invoice acts as a financial guarantee. Lenders do not consider bills of exchange to be bank collateral for certain reasons. Know Your Invoice offers a unique value proposition for banks and other financial institutions.
Invoice Financing
Invoice finance is a type of short-term borrowing offered by lenders to corporate customers on an open bill basis. Through invoice factoring, businesses sell receivables to improve working capital. This gives the company immediate funding to cover its expenses.
Invoice finance is a type of short-term financing that businesses can obtain for their outstanding invoices (accounts receivable). The basic purpose of invoice financing is to improve a company’s cash flow by making available money available today for future use. This means that customers do not have to pay for the purchased goods immediately. The purchasing company knows the total amount and due date of the invoice.
However, providing credit to customers binds the funds a company can invest to grow its business. Businesses can fund invoices to fund bad debts or to cover short-term liquidity. Invoice financing can be done in a number of ways, the most common being factoring or discounting. In invoice factoring, the company sells the outstanding invoices to the lender, who advances the company with 70% to 85% of the final invoice amount.
Selective invoice financing allows you to select specific customer accounts for financing, while spot factoring allows you to select specific invoices. Either way, you can take a more flexible, ad-hoc approach and raise money when you need it.
This is useful for businesses that have a clear idea of the amount they need but may find it more difficult to raise than factoring or discounting. No matter which facility you choose, invoice financing will improve your cash position. Excellent method. These products differ from factoring and rebates in that they are not full facility products. Selective invoice financing allows you to choose specific customer accounts to fund, whereas spot factoring allows you to choose invoices.
Either way, you can take the more flexible route. Our ad-hoc approach allows you to raise funds when you need them. Suitable for companies who know exactly how much money they need but find it more difficult to secure than factoring or rebates.
