What is Invoice Financing?
As defined by Investopedia, invoice financing is “a way for businesses to borrow money against the amounts due from their customers.”
Invoice Financing in a Nutshell
So, you have provided a certain amount of goods or services to your customer, and as per invoice terms, payment is usually due in 30 to 90 days, or some cases, 120 days later. That would mean having cash tied up in invoices during this period of time, but you need the cash (now would be good) to fulfil the next work order. Does this scenario sound familiar to you?
Enter Invoice Financing A.K.A. receivables financing. It’s also commonly known as accounts receivable finance, invoice factoring, or invoice discounting – that are basically ways to unlock cash tied up in invoices. Instead of taking on extra liabilities or debt, as with a business loan or using your assets, invoice financing offers a much shorter-term loan and gives your business a leg up in funding your growth. You can go ahead and take up a new work order tomorrow instead of waiting out for the next 30 days or so until your payment comes in.
How does Invoice Financing Work?
- You send your customer an invoice after you’ve delivered goods and/or services to them
- You then send the invoice details to your invoice financing provider, e.g., Validus/ banks
- You’ll then receive funds, typically a percentage of the invoice amount, in your nominated account, usually within 48 hours
- Different financing providers will finance different amounts depending on credit assessment
When the invoice is due, and your customer makes the payment, the remaining balance minus interest and any other associated fees will be paid back to you
Here’s an example
Acme has completed an order worth $100,000 and needed capital to take on a new project. They decided to obtain Invoice Financing to improve their cash flow instead of waiting for 90 days for payment (based on their standard invoice terms). Validus offers Acme 80% of the invoice amount, and they received $80,000 in working capital.
When their customer makes payment 90 days later, Acme will receive the balance amount less principal, interest, and any associated charges.
If Acme did not obtain invoice financing, they would not have obtained the capital needed to take up and start on a new project, impacting their revenue and profits.
So, how can Validus help?
We have made it possible for your business to get access to 100% unsecured loans, i.e., no collateral, and you can expect to receive funding approval within 48 hours. Pay-per-usage financing (invoice and purchase order financing) allows you to pay your loan interest according to the length taken to service the loan.
Does my business qualify?
Not all businesses are the same, and that includes their credit terms. Invoice Financing is best suited for businesses in the B2B industry ranging from Marine, Construction, Logistics, Wholesale and Manufacturing sectors. It is a pragmatic approach to easing potential cash flow crunch during a certain period of time before payment comes in and allows your business to continue staying ahead of the curve, such as taking up additional orders and introducing new product offerings.
Compared to banks and other factoring companies, the application process can be done entirely online with approval under 48 hours or even less and at a much affordable interest rate. To qualify for an Invoice Financing loan with Validus, your business must be a registered business on ACRA, operating for at least two years, and has a minimum annual revenue of at least SGD 500k.
Here’s what you need to send in*:
- Bank Statements (past 6 months)
- Financial Statement/ Management Account (past 1 year)
- Credit Bureau Statement (past 1 month) of Personal Guarantor(s)
- Notice of Assessment (past 1 year) of Personal Guarantor(s)
*Required application documents may vary on application based on the financing request