Business Loan In Singapore: How Can Invoice Financing Help Your Business?

Written by Alwin Goh

Being cash-strapped is not a great feeling. Running a business and managing operational expenses and monthly overheads can get stressful. Thus, having a good cash flow is essential to ensure that your business stays afloat and prospers. But how do you ensure a good cash flow when your business relies heavily on invoice payments? Outstanding invoices and delayed payments can leave you in a rut. Well, one quick fix businesses and SMEs can consider is a type of business loan called invoice financing.

What Is Invoice Financing?

Invoice financing is a short term business loan used by SMEs and businesses based on outstanding invoices by selling this to factoring companies. Through this, it can alleviate cash flow problems. 

In short, there are 2 types of invoice financing available: invoice factoring and invoice discounting. For this article, we’ll be focusing on invoice factoring, also commonly known as invoice financing.

Invoice factoring is the more common practice out of the two. With this loan, businesses will have speedy cash flow even if payments for outstanding invoices are a month or more away. The cash flow can be used for current operational expenses or to invest and expand the business.  

This type of loan has lower interest rates and is more flexible as businesses can decide the duration of funding. The average period of funding is a short period of 15 days to a year. Thus, invoice financing is a quick fix solution for capital injection for businesses for a short period of time. 

Here’s a quick overview of the differences between invoice factoring and invoice discounting.

Invoice FactoringInvoice Discounting
Invoices are used as collateral and are sold to the lender
Able to receive cash speedily
Lower interest rates
70% – 90% funding of the total invoiceLarger funding percentage of the total invoice
Factoring company will collect payment directly from clientsSMEs and businesses manage the collection of payment
Remaining 10% – 30% of invoice minus factoring fee will be paid to SMEs and businesses once payment is collectedSMEs and businesses have to pay loan and factoring charges once payment is collected
Used by start-ups or SMEsUsed by larger, established companies

How Does Invoice Financing Benefit Your Business?

Infographic showing how invoice financing, a type of business loan, can help your business
Invoice financing is a business loan catered for businesses dealing with goods and services on credit terms

1. Short-term option with low-interest rates

As goods and services have already been delivered, and the only step left is for the invoice to be paid; in comparison to other types of short-term loans, invoice financing is deemed less risky by financial institutions. 

2. Improve Business Cash Flow

Poor cash flow is one of the main reasons a small business fails. Outstanding invoices can lead to poor cash flow due to pending or delayed payments. 

Therefore, improving cash flow through business loans like invoice financing can help to reduce the risk of your business failing, and gives you the option to use the resources for other things. 

With cash flow not being an issue, businesses can explore opportunities and get ahead of their competitors. 

3. Overcome Delayed Payments

If your business relies on invoices to pay the bills, profit and finances may be affected due to outstanding invoices. 

SMEs are vulnerable to disruption, and cash flow issues can aggravate that. Your business may also lose investing and expanding opportunities if you take up precious time and resources to chase after late payments.

When you opt for invoice financing, the factoring company will assist in collecting the payments; thus ensuring that overdue payments do not hinder you from settling other operational expenses, or expanding and investing in business opportunities. You will be able to refocus your time and resources on improving and growing your business operations.

4. Secure Quicker Funding

If you are applying for a business loan with a bank, the wait time could range from 2 weeks to 3 weeks before receiving approval and funding. Unfortunately, your business cash flow and operations may be affected while you wait. 

With invoice financing, approval is quick, and businesses receive funding faster as compared to getting a normal business loan. Without the long waiting time, businesses can operate without disruption to the operations and can even use the excess cash flow for other opportunities.

Benefits And Drawbacks Of Invoice Financing in Singapore

Benefits

1. Quick Access To Cash

You can get fast access to working capital using invoice financing. 

With quicker access to cash, businesses with tight cash flow can now utilise invoice financing to improve their cash flow as and when they have to. 

This can allow businesses to take on new projects, experiment with new ideas, and cover expenses without being tied up due to outstanding invoices and poor cash flow. 

2. Management Of Account Receivables

When you opt for invoice financing in Singapore, your invoices are passed to the factoring company to manage. This can ease the burden on you, as you do not need to chase or stress over payments. 

The factoring company will help to look after your account receivables, manage the credit control processes, and manage delayed and ongoing payments. They can also sometimes help to negotiate better terms with suppliers or clients.

3. Only Invoices As Collateral

In most cases, the only security needed to set up the invoice financing in Singapore are the invoices. Your invoices will act as your collateral. As such, you will not have to use an asset such as your business property or vehicle for collateral backing. 

4. Does Not Impact Your Business Credit Score

As invoice financing is a sales transaction that exchanges cash for an outstanding invoice, it does not impact your business credit as it is not considered a debt. So, there is no need to worry about your business credit history being affected when obtaining an invoice financing in Singapore. 

Drawbacks

1. Unable To Obtain Full Funding For Full Value Of Invoices

Invoice financing does not give you the freedom to choose the amount you would like to borrow as it is relative to the total invoice amount. 

Depending on the type of invoice financing, businesses are only able to receive 70% – 90% of the invoice amount. Thus, you will not be able to receive the full funding value of your invoices. 

2. Risk Of Being Over-reliant On Invoice Financing

While invoice financing can ease the financial burdens of outstanding invoices, it can be a vicious debt cycle if the business has any underlying cash flow issues. 

SMEs and businesses can be over-reliant on invoice financing and may not address the real problem affecting the business. This can cause the business to be in a vicious cycle of having to apply for invoice financing repeatedly to manage their monthly cash flow problems. This can be a problem in the long run as the business is not healthy and can result in failure of the business.

3. The Factoring Company May Be Seen As A “Debt Collector”

Some clients prefer to deal with your business directly instead of the factoring company. They may perceive them as a “debt collector”, and that can impact the impression the clients has on your business.

Your clients may also assume the cash flow problems that your company is facing. This can affect your relationship with them and may even cause the business to lose them.

Gold coins stacked with cash notes marking a positive cash flow in business
Maintain a positive cash flow position with a business loan in Singapore

Don’t let outstanding invoices stand in the way of the success of your business. In Singapore, invoice financing is an easy solution to handle your finances while you can focus on managing your business operations.

Looking for business loans in Singapore? Reach out to Capitall and speak to our friendly financial consultants today. 

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Given the economic impact of Covid-19, many businesses around the world have taken a hit. In Singapore alone, as many as 457 retailers have closed down in September 2020. But it is not all doom and gloom for businesses in Singapore, as Covid-19 support loans are available to help them tide through this tough period.  […]

Business Loan 7 Reasons Your Temporary Bridging Loan Programme (TBLP) Application May Have Been Rejected

Getting a loan application rejected is the last thing businesses want, especially during this tough period. If you applied for the Temporary Bridging Loan Programme (TBLP) but your application was rejected, knowing the possible reasons for its rejection can help you improve your chances for future loan applications.  What Is The Temporary Bridging Loan Programme […]

Business Loan A Guide To The Temporary Bridging Loan Programme (TBLP)

Is your business looking for short-term financing support to alleviate its cash flow needs? The Temporary Bridging Loan Programme (TBLP) can open up access to more working capital for your business, helping it bounce back stronger.  As a bridging loan, the TBLP provides immediate cash flow via a fast application and approval process, thus allowing […]

Media Business Insider | Capital C Corporation Announces Partnership and Digital Onboarding Plans To Meet Today’s Evolving Consumer and Business Communities

Capital C Corporation (“Capital C“) announces its partnership with Citystate Group. The joint-venture, Capitall Auto Financial Services Pte Ltd., marks Capital C’s foray into Singapore’s auto-financing market. This builds up Capital C’s existing portfolio of financial services for individuals and businesses. With deeper integration to Singapore’s National Digital Identity platform initiative, Capital C is poised for more growth in […]

Media yahoo!finance | Capital C Corporation Announces Partnership and Digital Onboarding Plans To Meet Today’s Evolving Consumer and Business Communities

Capital C Corporation (“Capital C“) announces its partnership with Citystate Group. The joint-venture, Capitall Auto Financial Services Pte Ltd., marks Capital C’s foray into Singapore’s auto-financing market. This builds up Capital C’s existing portfolio of financial services for individuals and businesses. With deeper integration to Singapore’s National Digital Identity platform initiative, Capital C is poised for more growth in […]

Company Capital C Corporation Announces Partnership and Digital Onboarding Plans To Meet Today’s Evolving Consumer and Business Communities

Capital C Corporation partners CityState Group to launch Capitall Auto Financial Services Capital C Corporation integrates more of National Digital Identity platform to meet underserved consumers with more user-friendly FinTech services 19 November 2020 — Capital C Corporation (“Capital C“) announces its partnership with Citystate Group. The joint-venture, Capitall Auto Financial Services Pte Ltd., marks […]

Business Loan How Does Getting An Sme Working Capital Loan Help My Business?

Taking a working capital loan in Singapore is common among SMEs. In short, a working capital loan is a specialised type of loan designed to help businesses cover daily operational costs.  Unlike other business loans, working capital loans generally do not need you to state the purpose of borrowing, as these loans are short-term and […]

Business Loan How Much Should You Get For Your SME Working Capital Loan

If you’ve been following this space, you would know that we’ve been discussing what working capital loans are and how they can benefit SME businesses. Working capital loans help SMEs finance day to day operations and provide short term solutions to pressing challenges such as seasonal fluctuations and downturns. Perhaps your business needs to take […]

Business Loan 5 Common Misconceptions On Getting A Business Loan In Singapore

Thinking of striking it out on your own? Do you have big plans and an ambitious vision but don’t have enough capital yet? Getting a business loan in Singapore might just be the first step you need to take! Many business owners hesitate to take a business loan due to a range of reasons. It’s […]

Business Loan Why Your Business Loan In Singapore Might Have Been Rejected

There’s nothing more frustrating than to find out that your business loan application has been rejected.  Business owners look to banks and financial institutions to get business loans for a myriad of reasons. Whether it is to expand, innovate, or to cover day to day operations, having access to funds at the right time is […]

Business Loan Business Loan In Singapore: 6 Tips To Increase Your Approval Chances

Does your business need a loan? Have you already tried applying for loans in the past but got rejected?  In Singapore, it’s almost impossible to go about building up your business without getting a business loan. Having your business loan rejected can be extremely troublesome.  If you have been following this space, we have previously […]

Business Loan 6 Reasons Why SMEs Take Business Loans In Singapore

In Singapore, 65% of the economy is made up of SMEs. From e-commerce startups to financial products, there are all sorts of SMEs in the Singapore market. With a high saturation of competitors in different markets, growing your business is extremely challenging in Singapore.  On top of stiff competition, SMEs also face the challenges of […]

Business Loan Avoid These 6 Mistakes When Applying For A Business Loan In Singapore

Starting a company can be a challenging feat. Not only must you have a good business idea, but you must also get enough capital. That’s not even considering all the countless administrative matters to handle. The first part, getting a good idea, is often already established when the company is founded. However, most companies struggle […]

Business Loan SME Working Capital Loan: 6 Types Of Short Term Financing Options To Boost Your Working Capital

Running a business costs money. If you are an experienced business owner, you would know that it is not easy to run a startup in Singapore. From employees’ pay to inventory, or even just turning the lights on, the cost of day to day operations adds up. That is why loans are unavoidable when you […]

Business Loan Working Capital Loan For SMEs: 5 Essential Questions To Ask When Taking One

Have you ever considered taking a business loan to meet the financial needs of your Small and Medium Enterprise (SME)? If yes, you probably have heard of working capital loans for SMEs. In short, working capital is the money companies use for daily operational expenses. Managing your working capital properly can be challenging for an […]

Business Loan Digital Presence and E-Seller loans in Singapore

As the world is moving at a fast pace, the society is converting into a cashless society. People are more likely to be digitally active and doing business. Online selling and buying have become a new business market. The new generation is drawn towards the trend and soon the world will convert into a society […]

Business Loan 7 Ultimate Reasons Why Successful SMEs Get a Business Loan

Small and medium enterprises (SMEs) continue to be one of the biggest players in Singapore’s economy. Based on a survey conducted by SME Magazine, SMEs continue to grow amid economic difficulties. The data also showed that the average revenue increases by about 109% than the previous year. As SMEs increases in numbers, we have observed […]

Personal Finance How to Manage Your Finance?

Managing your finances is a very tedious task especially for the ones who don’t understand accounts and finance at all. Most of us, even the ones who have just stepped adulthood have a job. We may have our own startup, work in an MNC, or maybe a government employee. We are here to let you […]

Media CNA | The Entrepreneur 2019

This series celebrates the achievements of 10 businessmen and women who prove to have what it takes to break boundaries and emerge as winners of Singapore’s Entrepreneur of the Year Awards (EYA).

Media sgsme.sg | 10 Business Leaders Recognised as Entrepreneur of the Year

From training aspiring pilots to lending money, 10 local entrepreneurs received the Entrepreneur of the Year Award (EYA) 2019.

Media MoneyFM89.3 | The Breakfast Huddle

Find out how local firms are helping F&B SMEs scale their businesses.

Media The Business Times | CEO Conversation: Transforming into a Digital Financial Services Provider

Singapore-based Capital C Corporation has come a long way since the inception of its money lending arm in 2011.

Media e27 | The Case for Alternative Lending

In the last decade, we have witnessed rapid growth in the alternative lending space, with the creation of new business models opening up the range of alternative lending products available.

Media APAC CIO Outlook | How Fintech is Driving Innovative Lending

In Singapore, SMEs account for around two-thirds of the workforce and a large chunk of GDP growth.

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