There are so many people that dream of starting their own business; they have an exciting new product idea, they excel at providing an in-demand service, or they’ve figured out how to make something ubiquitous, new and exciting again. Entrepreneurs take on great personal risk when starting a new venture and the majority put in very long hours of hard work to make their idea see the light of day. Of course, there are failures along the way, but what if your product or service is the one to get the attention of a large retailer or other powerful player in the market. You’ve finally got your big break! The large order comes in, you make the necessary arrangements, hire staff, expand your facilities, purchase supplies and equipment all in an effort to make your customer’s experience the best that it can be. You may have taken out a business loan or line of credit to make all of this work. And then it happens - your customer requests extended payment terms, 90 days until you get paid for the products or services you’ve invested in today. That’s three months without being able to pay your newly hired staff, to pay the rent on your new work space, to pay for the supplies you bought on credit. This scenario can spell disaster for lots of small and even medium sized businesses. You can’t grow and continue to provide top quality products or services without cash outlay. Many businesses are already leveraged, dealing with credit card payments, bank loan payments, and dealing with accounts payable. Perhaps your own suppliers aren’t too thrilled at the idea of you not being able to pay for 90 days. Suddenly, the ideal scenario, a big fish finally caught, turns into an anxiety-inducing nightmare.
No matter what industry or niche your small business represents, managing cashflow is a primary concern. Your business still needs to pay its own bills, maintain inventory levels, increase reach, and grow more successful.
To stay solvent during the invoice period, many smaller businesses turn to credit or traditional invoice factoring. Both of these options help, but high interest rates and unfriendly terms cut into the benefit offered. Using these services can also interfere with your customer relationships. Not to mention the fact that these options may not even be available to a business that is already leveraged. In the long run, the business owner ends up spending and stressing more to extract cash trapped in accounts receivable. There are more novel ways of cashflow financing. Invoice trading or selling invoices to an investor for a small discount is a great way to be in control of when you get paid. And if there is anything that an entrepreneur loves, is control over their own destiny.
In this day and age an increasing number of individuals and companies turn to their peers rather than traditional banks or financial institutions for help. Think Kickstarter, GoFundMe, and SocietyOne. With how difficult launching and growing a new business is, and all the struggles that surround cashflow management, peer-to-peer invoice finance makes sense.