Businesses issue invoices to their customers for completion of good & services. Simple stuff however, it’s worthwhile taking a deeper look at what an invoice actually is.
Plainly stated an invoice is the promise of a future cash payment by a third party. In accounting and business parlance any future positive cash flow is labelled an Asset and specifically for an invoice it is a Current Asset as it converts to cash in the short term (e.g. payment terms NET 30 days). For many businesses in B2B industries, it is common place for the accounts receivable ledger to be the only asset of value on the balance sheet.
This is even more prevalent with young businesses who have yet had the time to accumulate tangible (e.g. cash balances, plant equipment) and intangible assets (intellectual property).
When sourcing capital to grow their businesses all owners should be considering the value contained within their AR ledger and ways to leverage it. This is especially pertinent should the owner not wish to pledge personal assets as loan security.
— Waddle (@getwaddle) November 6, 2015
Recent advances in technology has made invoice finance an attractive option with the removal of often thought negative aspects of this loan type. No longer are your customers aware that invoice finance is in place. No longer is there an operational impact with the traditional bookkeeping overhead now removed.
Once the decision is made to investigate invoice finance options it is important the business owner understands the key concerns of an invoice financier:
- Are the books up to date?
- Is the Accounts Receivable ledger reconciled?
- How often are bookkeeping duties performed - daily, weekly, monthly, yearly?
- Is a modern cloud-enabled accounting system in use (e.g. QuickBooks Online, MYOB AccountRight Live, MYOB Essentials or Xero)
- Who do you sell to - larger brand names or lesser known businesses?
- How many customers do you have - a single customer or a spread of customers?
- How good are you at managing debtor payments – do your customers pay on time?
Armed with this knowledge, you are in a strong position to negotiate the best possible invoice finance deal.
So, what’s in an invoice? In short – value for the business owner.