Invoice Financing: Why is it Important?

If you’ve ever operated a small business of any kind, you’ve likely experienced the stress associated with cash flow issues. While awaiting payment for a product you’ve shipped, you still have to pay your staff, keep the lights on, and market your business, but where is the money coming from? Cannabis business owners, who generally operate entirely in cash due to banking restrictions, face this problem on an even greater scale. When cannabis businesses have to wait on receipt of payment for their open invoices, it can create working capital strains and hinder business growth. Invoice financing offers an excellent option for cannabis business owners looking to prevent cash flow interruptions. 

What is Invoice Financing?

Invoice financing is not unique to the cannabis industry, but it is an especially valuable tool for cannabis business owners. Invoice financing is a type of loan that allows businesses to borrow money against the payments due from customers for orders that have already been placed. With invoice financing, a business owner receives a loan that offers partial repayment on outstanding invoices in exchange for a percentage of the overall invoice when the amount is paid in full.  Many cannabis businesses have a long lead time on open invoices, sometimes waiting up to 90 days to receive payment. Invoice financing allows businesses to cover expenses and reinvest in operations and growth costs without worrying about cash flow.

Why is Invoice Financing Important?

Invoice financing is important because it allows cannabis business owners to cover the gaps in funding based on open invoices in a way that is both flexible and financially sensible. Invoice financing can provide capital to business owners within a short time frame – typically about two business days – which means you won’t have to worry about making payroll or keeping the lights on, because you’ll have your money fast. Invoice financing also offers business owners the opportunity to extend liberal payment terms to your clients, which may help you to grow your client base because you don’t have to be as focused on managing payment timelines. Because invoice financing only accrues interest when you’re actually using the money, it is more flexible than a traditional loan and can save you interest. 

How Does Invoice Financing Work?

There are four steps to invoice financing: 

1. An invoice is issued to the cannabis business owner for goods or services. The invoice is due in 30 days and the business owner requests invoice financing.
2. A percentage of the invoice amount (approximately 80 percent) is deposited directly into the invoicer’s account from the lender.
3. The business owner uses the funds to increase production and profits. Financing fees accrue during this time until the invoice is paid in full to the lender.
4. The invoice is paid in full to the lender, who completes payment to the invoicing company minus accrued fees.

Under the terms of invoice financing, the borrower is paid directly by the lender and interest only accrues when the funds are used. Repayment terms are generally about 90 days in length, and fees are approximately 2.5 to 3.5 percent of the invoice amount and are assessed every 30 days. 

Which Cannabis Businesses Can Benefit from Invoice Financing?

Invoice financing is an excellent option for business owners involved in nearly every aspect of the cannabis industry, but cultivators, distributors, manufacturers, cannabis brands, and ancillary companies will find these services especially helpful. Other elements of the cannabis industry, such as dispensaries, may also benefit from invoice financing under certain circumstances. 

Where Can I Get Invoice Financing?

The best place for cannabis business owners to obtain invoice financing is from commercial lenders focusing specifically on the cannabis industry. Because these lenders deal specifically with cannabis businesses, they are uniquely qualified to understand the financing obstacles business owners face and are likely to offer invoice financing.

from Feedster https://www.feedster.com/business/invoice-financing-why-is-it-important/