Maximize Your Cash Flow: How Credit on Invoice Can Improve Your Bottom Line and Help Customers

By Lucas Brachet

Published: March 27, 2023

In today's fast-paced business world, managing cash flow is crucial to the success of any company, regardless of its size. If you're looking for a simple yet effective way to improve your bottom line and streamline your AP process, credit on invoice may be the solution you've been searching for.

In this article, we'll explore everything you need to know about credit on invoice, including what it is, how to use it, and the many benefits it offers to businesses. From improving your cash flow to its impact on bottom-line results, credit on invoice is absolutely worth considering when wanting to optimize your financial management.

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What is Credit on Invoice?

Credit on invoice allows a seller to receive a portion of their outstanding invoices upfront, before their client has actually paid them. This means that a vendor can get access to cash sooner, without having to wait for lengthy payment terms that can put a strain on their cash flow. This is particularly beneficial for small businesses, where managing cash flow is critical. In fact, this process is a form of small business factoring, a method that many small companies use to improve their cash positions.

This is how credit on invoice works: a business sends an invoice to their customer for buying their product as usual, but instead of waiting for the buyer to pay the full amount, they can sell a portion of that invoice to a third-party lender, often referred to as a factoring company. The factoring company then advances a percentage of the invoice amount to the business, typically ranging from 70-90% of the invoice value, depending on the terms of the agreement.

Once the customer pays the invoice, the factoring company will pay the remaining balance to the business, minus their fees for providing the credit on the invoicing service.

As you can see, the process is simple and straightforward. Credit on invoice, or small business factoring, can therefore be an effective way to better manage cash flow and keep your business running smoothly.

How to Use Credit on Invoice?

You can get started with using credit on invoice in just a few easy steps. Here's a quick overview of what you have to do:

Step 1: Find a factoring company

The first step is to find a reputable factoring company that offers credit on invoice services. Look for a company that has a proven track record, positive reviews and information, and reasonable fees.

Step 2: Submit your invoices

Once you've chosen a factoring company, you'll need to submit your invoices to them for approval. The factoring company will review your invoices and determine how much credit they are willing to offer based on the creditworthiness of your customers.

Step 3: Get your advance

Once the factoring company approves your invoices, they will advance you a portion of the total amount, typically within 24-48 hours. This advance can be used to pay for operating expenses, invest in new equipment, or cover any other business-related costs.

Step 4: Collect payment from your customers

Once your customers pay their invoices, the factoring company will deduct their fees and return the remaining balance to you. This can be an effective way to manage cash flow and ensure that you always have the funds you need to keep your business operations running as needed.

Next, let’s discuss why using credit on invoice might be useful.

Why use Credit on Invoice?

As we’ve seen, credit on invoice is like getting a cash advance on the work you've already completed, allowing you to get paid faster and avoid delays in important investments and day-to-day operations. Let's take a closer look at the most important reasons why to actually use credit on invoice:

Get Paid Faster

One of the biggest benefits of credit on invoice is that it allows you to receive your money earlier. Instead of waiting weeks or even months for your customers to pay their invoices, you can get an advance on the funds you're owed and use that money to cover your expenses and invest in what you need for your business.

Improve Cash Flow

Getting an advance on your invoices, means that you can improve your cash flow and ensure that you always have the funds you need to keep your business up and running. This can be especially valuable for businesses that have irregular or seasonal cash flow patterns.

Simplify Your Operations

With credit on invoice, you don't have to worry about managing collections or chasing down payments from your customers. The factoring company takes care of all of that for you, allowing you to focus on growing your business and serving your customers. So, it saves you valuable time and stress!

Manage Risk

Credit on invoice can also be a valuable way to manage risk and protect your business from bad debt. By working with a factoring company that offers credit checks and other risk management services, you can ensure that you're only working with customers who are creditworthy and able to pay their invoices on time.

Now that you are familiar with the reasons why to use credit on invoice, let’s take a closer look at specific benefits for your bottom line.

What are the benefits of Credit on Invoice?

There are even more than the obvious benefits of using credit on invoice in your financial operations. In fact, credit on invoice can have a positive ripple effect on your business’s overall financial health and competitiveness. Here are some of the core benefits with the greatest impact:

Access to immediate cash: Credit on invoice provides access to immediate cash, which can help your business cover expenses and invest in growth opportunities.
Improved customer relationships: Offering credit on invoice can improve your customer relationships by providing them with more flexible payment options.
Increased sales: By offering credit on invoice, you may be able to attract new customers who are looking for payment options beyond traditional payment methods.
Improved credit score: Using credit on invoice can also help improve your credit score by demonstrating your ability to manage your accounts receivable effectively.
Better financial planning: Finally, credit on invoice allows you to plan your finances more effectively by providing a more predictable cash flow.