According to research, 35% of B2B invoices remain unpaid past their due date which can significantly strain cash flow. Beyond immediate liquidity issues, delayed payments can hinder business growth, disrupt supplier and customer relationships, and undermine overall operational stability.
Thankfully there’s a way around this in the form of invoice financing, a strategy that allows businesses to unlock cash tied up in unpaid invoices.
Invoice financing is a type of loan that allows businesses to obtain funding by pledging unpaid invoices. This is usually between 70% and 90% of the value of all presented invoices. Invoice financing takes two main forms: financing and factoring. In the former, the borrower remains responsible for collections, while in the latter, the lender assumes that responsibility.
Read more: Who Has Better SME Loan Interest Rates, Private Lenders or Moneylenders?
Invoice financing is ideal for businesses managing seasonal growth or taking on large orders that require upfront cash before payment is received.
Some key benefits of using invoice financing:
Quick access to funds
Unlock working capital within days instead of waiting weeks or months for customer payments.
Leverages your customer’s creditworthiness
Your client’s strong payment history can strengthen your financing application, even if your business has limited credit.
Reduced administrative workload
Invoice factoring can include payment collection services, easing the burden on your internal finance and HR teams.
High flexibility of use
Funds can be used for any business purpose, with no usage restrictions imposed by the financier.
Scalable financing amounts
Loan sizes grow alongside your business, based on invoice value and your repayment track record with the lender.
Strengthens cash flow without traditional debt
Improve liquidity and operational stability without taking on long-term loans or diluting ownership.
While invoice financing can be an effective way to improve cash flow, it’s not a one-size-fits-all solution. Understanding the potential costs, risks, and operational impact is essential before committing to a lender.
Below are three key factors every business should carefully evaluate to ensure invoice financing supports long-term growth.
1. The Fees Involved
There are several fees associated with invoice financing, and these can vary between lenders. Always review the agreement to understand the full cost, including service charges, discount rates, and administrative fees.
2. Customer Payment Risk
If customers delay payment or fail to pay their invoices, additional interest or penalty charges may accrue. Depending on whether you choose invoice financing or invoice factoring, your business may also remain liable for unpaid invoices.
3. Customer Relationships
Consider how your customers might feel about dealing with a third party for payment collection. In factoring arrangements, lenders often contact customers directly, which could affect your client relationships.
Once you’ve decided that invoice financing is suitable for your business, understanding the process can help you move forward with confidence. While the exact steps may vary slightly between lenders, the overall structure remains largely the same.
Read more: How to Pick The Right SME Business Loan for Your Industry
Below is a straightforward breakdown of how invoice financing typically works from start to finish.
Congratulations! You have an order from one of your clients. Issue the invoice and ensure that all details (including invoice amount, due date, and payment terms) are accurate, verified, and agreed upon by both parties. This invoice will form the foundation of your invoice financing application.
Once your invoice is ready, select the invoices on your ledger that you intend to use as collateral. Through Lendingpot, you can easily connect with multiple lenders that offer invoice financing solutions. The loan amount you receive will depend on the total value of the invoices your business submits.
Within 24 to 48 hours, you’ll receive feedback on your application. Upon approval, the lender typically advances between 70% and 90% of the value of your unpaid invoices, providing your business with immediate access to working capital.
Your customer pays the invoice according to the agreed payment terms. This payment is made directly to the lender, who deducts their fees and interest before proceeding to the final settlement.
Once the invoice has been fully paid, the lender releases the remaining balance to your account, minus the agreed-upon fees and charges.
Invoice financing can be an excellent way for SMEs to stabilise cash flow and bridge payment delays. It’s quick, flexible, and scales according to your business needs.
When choosing a lender, it pays to compare the service fees, advance percentages, and repayment terms to ensure you’re getting a fair and sustainable arrangement.
And you can do that easily through Lendingpot. We have partnered with over 45 licensed and established lenders in Singapore, making it easy to compare options side by side and find the right fit for your business.
Looking for an invoice financing loan? Apply now through Lendingpot. If you have any questions, our loan experts are ready to guide you through the process and help you make an informed decision.
Benjamin heads up Lendingpot with a background in all things SME. He was previously a commercial banker at Citi with experience in Relationship management, Credit Risk, Trade Operations and Corporate FX sales; and understands the difficulties SMEs face in this opaque world of SME financing.
