Invoice financing is a type of loan offered to a business to help address cash flow gaps. It differs from conventional loans in the sense that businesses pledge unpaid invoices to lenders in return for quick cash. In this article, we’ll be sharing some of the benefits of invoice financing.
The most immediate benefit of invoice financing is that it helps businesses address cashflow gaps – freeing up funds that can be used on other projects or business improvements. Having more funds available allows businesses to be ready to exploit new opportunities as they turn up instead of having to wait for customers to settle their invoices in full.
Another benefit that many businesses will appreciate is that invoice financing requires no collateral. Traditional loan products typically require collateral as security, but with invoice financing, the invoice itself becomes the guarantee.
When applying for traditional loan products, banks and other financial institutions place more scrutiny on a business’ history. This means that businesses with either slow growth or newly launched will find it more difficult to get approved for a loan. However, with invoice financing, loans are based on the value of outstanding invoices, making it possible for a new or growing business to acquire a loan.
In building good relations with customers, sometimes a business has to make concessions. Concessions, such as extending the payment terms beyond the industry standard of 30 to 90 days, which may stress a business’ cash flow.
With invoice financing, that worry is put to rest; businesses can comfortably extend payment terms more confidently, knowing that a financing option is available.
Invoice financing helps bridge cash flow gaps. Apart from the obvious benefits, such as employees and suppliers getting paid quicker or companies can reinvest in their operations or growth much earlier, this provides a foundation for good business relations. As a business continues to build credibility with its circle of business partners, it paves the way for more opportunities.
Traditional loans from banks and other financial institutions usually require a significant amount of time before funds can be released. With invoicing financing, loans can be disbursed in as quick as a day. This is beneficial when a business needs a quick influx of cash to address business expenses.
One disadvantage of purchasing from larger and more established suppliers is that payment terms tend to be fixed. For a small business, this is a problem. In addition, it is likely that they will have little room or leverage to negotiate more favourable terms. With invoice financing, small businesses are in a better position to meet payment terms by larger businesses without affecting their bottom lines.
Lendingpot makes it easy for small businesses to get loans by opening them up to a wider variety of credible financial institutions with one simple application. We’ve worked to ensure our platform results in a positive loan experience. You can read more about that here. If you wish to start your application, you can do so by clicking here.
Apart from the standard business documents like your bank statements, financials, guarantor’s NOA and CBS report. The more important documents are:
Most of the time, it can take up to 1 month to get a credit line approved. This is typically due to the fact that they need to get you set up on a system as well so that you can be familiar with the operational process with the financier.
Invoice financing services are divided into two categories: recourse and non-recourse. Non-recourse financing has higher costs, but the financier will bear the risk if the consumer does not pay. Recourse financing is less expensive, but you must purchase back invoices if they go unpaid for a certain number of days as specified in the financing agreement.
Most financiers can offer a credit limit of up to S$10 million depending on the credit quality of your end buyer.
There is a one-time disbursement fee on each invoice and an interest fee that is charged prorated to the tenor of the financing.
Lina heads up all things marketing and branding at Lendingpot. With a keen aesthetic eye, she believes in the use of design to communicate with our SME community and aspires to turn Lendingpot into a household name. Out of work, she is an avid camper and appreciator of nature’s best works.