Business Loans

Clearing Misconceptions about Invoice Financing in Singapore (Video Series: 1/3)

Eric Koh
March 8, 2018

This article will provide more details about topics covered in our video.

In this video, we interviewed Lee Kheng Leong, the Asia Chapter Director of Factors Chain International (FCI), about some key benefits of invoice financing (aka invoice factoring).


1. Clarifying the common invoice financing terms used in Singapore

Invoice Financing, Receivables Financing, Factoring or Accounts Receivables Purchase?

In Singapore, financial institutions use these terms interchangeably, contributing to the confusion of small business owners, and obscuring the meaning and usage of these terms.

Invoice financing generally refers to any banking product that uses an invoice as a reference for borrowing capital.

This includes financing products that are initiated by both buyers and suppliers.  

                   

This is a normal business cycle.
     

         

In a normal business cycle, the manufacturer (supplier) issues invoices and the buyer receives invoices.

An invoice financing product initiated by the supplier to fund its working capital is usually referred to as Receivables Financing; using their receivables to get financing.

On the other hand, an invoice financing product initiated by the buyer to fund its purchase of goods is usually referred to as Purchase Financing; seeking loans to finance their purchases.

                   


         

2. What about Invoice Discounting?

This is another word that the industry uses interchangeably.

Discounting = Financing.

Discounting describes one of the processes of invoice financing. A financial institution will usually provide invoice financing to a client based on a discount (financing only 80% of the total invoice value).

Fees and interest will be collected from the 20% retained and any leftover value will be returned once the financial institution has collected the payment from your debtors.


3. How do the different types of invoice financing work?

This is how each product works. Once you understand who initiates the loan, you can understand how each product functions.

                   

12-1080P.png
                                                                                                                       

In most cases, only one party communicates with the bank; unlike factoring where everyone communicates with the bank.  

                   

                                                                                                                                 

         

4. What are the pros and cons of pledging or selling invoices?

As mentioned in the video, you sell your invoices in a Factoring arrangement and pledge your invoices in a Receivables Financing arrangement.

                   

clearing-misconception-3-1.png
                                                                                                   

         

Legally, this small detail means that in a Factoring arrangement the bank has the legal right to sue your customers on your behalf if they fail to make payment.  

We have more videos coming up. Stay tuned!  

Edited by: Paul Hong


Request for a Business Loan Now!

Lendingpot.sg operates a Business Loan Marketplace that allows an SME to connect to multiple lenders with just one application, allowing the SME to know who its prospective lenders are and the rates that they offer, in a very short time.


Leading digital loan marketplace Lendingpot connects SMEs to its network of 45 lenders comprising relationship managers from banks, financial institutions, and private and peer-to-peer lenders in Singapore. It aims to help SMEs overcome the information asymmetry problem and lack of transparency prevalent in the SME financing sector by offering SMEs financing options such as business term loans, property loans, revenue-based financing, credit lines, working capital loans, bridging loans, invoice financing, and more.

About the author

Eric Koh is passionate about helping SMEs grow and has spent years interacting with business owners at OCBC and IFS Capital. He is interested in 70s rock ‘n roll, the odd novel and copious amounts of historical trivia.

SMEs
SME Loan
business
business loan

You may also like

News
6 things SMEs need to know about Budget 2023
Pebbles Lee
February 16, 2023
Business Loans
What Happens if You Cannot Repay Corporate Loans in Singapore
Lina Tay
October 31, 2023
Business Loans
Lendingpot’s Singapore SME Financing Report - 2019
Bernice
January 9, 2020