Bad Credit Invoice Financing
Invoice financing, or capital that businesses can access against unpaid invoices, can be a useful way to bridge a cash shortfall or else invest in the business with quick access to capital. Interested businesses can apply for funds via an invoice financing company, which will look at a businesses accounts receivable to determine the total outstanding balance. From there, they will approve a certain limit and generally make a percentage of the funds available quickly, with the balance paid once the businesses customers pay.
In return, the invoice financing company will take a percentage off the total balance of the accounts receivable and may charge an additional fee and then relay the funds to the business. They may also work to follow up directly with the customers to track down payments owed.
Invoice financing companies are distinct from traditional lenders and offer an alternative for businesses that may not otherwise qualify for more traditional business loans. They are good options for businesses that might have bad credit or a short credit history as invoice financing companies look more at the businesses customers than at the business to gauge financial viability.
Does Bad Credit Matter for Invoice Financing?
The short answer is no; bad credit should not impact your ability to qualify for invoice financing. Even if your credit score is low or your credit history is new, two disqualifiers for more traditional loans or capital, you can still be considered for invoice financing.
Invoice financing has a lower threshold for accessing capital than traditional lenders because the funding comes from your customers versus loaned funds from external sources. A business seeking invoice financing is essentially borrowing against its future income from its customers.
The only stipulation to securing invoice financing is that a business must have healthy accounts receivable. That means a good customer list, invoices with 30, 60, or 90-day net due, and any outstanding monies. The invoice financing company will consider the total balance owed, the payment history, and possibly the credit history of the business’s customers.
If the business’ customer has a history of not paying invoices, that could limit your qualifications for invoice financing. Otherwise, your fee or the percentage the invoice financing company takes off the total balance might be higher. Invoice financing interest rates may also be higher if your accounts receivable balance is not high or your customer has a checkered history of paying. Many companies will not require an invoice financing credit check to qualify.
How Can I Get Invoice Financing with Bad Credit?
A business should first decide what they need financing for. It might cover overhead until outstanding invoices are paid, purchase new equipment, mend or build infrastructure, or for any other business expense. The business owner can then consider their options based on the age of the business, credit history, score, amount of funding needed, and how soon it needs it.
To be considered for invoice financing, a business should consider its customer base. Businesses in the B2B space or else have a healthy number of customers that pay invoices regularly, regardless of credit score or history. They are most likely to qualify for invoice financing.
Once deciding that invoice financing is the right option for your business, you can apply with an invoice financing company. They will ask for copies of your outstanding invoices to establish the potential amount of financing you might be approved for. You may not need to provide details of your business financials to qualify, and many invoice financing companies will not need to run a credit check. However, some may ask your customers for additional documentation or credit information.
After completing an application and providing the required documentation, getting approved for funding can take anywhere from less than one day to a few days. Fund access may be near following immediate approval or can take a little time to process. Generally, the invoice financing company will release a percentage of the funds upfront, often in the ten percent range, and then pay the balance, less any fees, when the businesses’ customers pay.
Resources like BusinessLoans.com, those aggregate lenders, can be a helpful starting place to review invoice financing options and choose the one that’s right for you and your business.
Bottom Line
Bad credit is not an automatic disqualifier to accessing capital for your business. Options like invoice financing are worthwhile avenues for a business to receive a quick cash infusion against outstanding customer invoices. Bad or low credit is not a barrier to invoice financing like other types of loans might be.
Yes. You can get invoice financing with bad credit or with a short credit history, as invoice financing companies will look more at accounts receivable than at the business itself.
No. While some banks offer invoice financing, most do not. Invoice financing companies are distinct entities that most often offer invoice financing.
