Key Advantages of Invoice Factoring for Improving SME Cash Flow

Invoice Factoring (Disclosed Invoice Financing) vs. Confidential Invoice Financing: Choosing the Best Option to Boost your Singapore SME’s Cash Flow

For small and medium-sized enterprises (SMEs) in Singapore, maintaining a healthy cash flow is essential for sustained growth and success. Businesses that are looking for a short-term boost to their cash flow without taking on additional debt in the form of a working capital loan, may turn to alternative lenders who provide invoice financing solutions such as invoice factoring. With invoice financing, small businesses in Singapore can use unpaid invoices as collateral for an immediate infusion of funds to improve business cash flow.

As businesses explore invoice financing, invoice factoring, or invoice discounting options, two popular choices are available: invoice factoring, which is a disclosed form of invoice financing, and confidential (non-disclosed) invoice financing. In this article, we’ll delve into the distinctions between these approaches and shed light on why invoice factoring, also known as disclosed invoice financing, is more advantageous from both a credit risk and interest rate perspective.

What is Invoice Financing, or Accounts Receivable Financing?

Before we explore the details, let’s briefly outline what invoice financing in Singapore entails. Invoice financing, also known as accounts receivable financing, is a flexible funding solution that enables businesses to get a fast and easy cash advance, by unlocking up to 90% of the value of their outstanding invoices before they are paid by their customers.

Unlike an overdraft, the credit limit that a business may access through invoice financing is independent of past business performance. Invoice based financing typically enables small businesses to access more funds compared to an overdraft or conventional business loan. The funds that the business may unlock in advance expands alongside the growth of the business, in tandem with the business’s sales. In addition, credit assessment is done based on the business’s customer, instead of the business. Therefore, no documents are required for credit assessment.

Invoice based financing can be especially beneficial for SMEs and startups facing cash flow gaps caused by extended payment terms or slow-paying clients. By leveraging accounts receivable financing, businesses can access the capital they need to cover operational costs, invest in expansion efforts, and capitalise on new opportunities.

Invoice Factoring: Disclosed Invoice Financing, a Transparent Approach

Invoice factoring, also known sometimes as disclosed invoice financing, involves a transparent arrangement between the business, the invoice financing loan provider (the invoice factoring company), and the business’s client. In this arrangement, the business’s customers are informed about the financing arrangement, and they channel their payments directly to the invoice factoring provider. This approach offers distinctive advantages for businesses.

Advantages of Invoice Factoring

1. Lower Credit Risk Leads to Lower Interest Rates

One of the standout benefits of invoice factoring, a disclosed form of invoice financing, is its potential to secure lower interest rates. By notifying your customer about the financing arrangement with your financing partner, you reduce your lender’s exposure to credit risk. The transparency ensures that the financing provider is aware of your customers’ payment habits and can better assess the reliability of your customers – such as their ability to pay, and their willingness to make payments punctually. This reduced risk, especially when the customer’s credit standing is robust, often translates into more favourable lending terms, including lower interest rates, which can significantly impact the overall cost of financing.

2. Suitable for Startups Without Credit History

Disclosed invoice factoring is particularly well-suited for startups and small businesses seeking to strengthen their financial foundations. Unlike larger enterprises, these businesses often face unique challenges when it comes to securing funds for growth. Disclosed invoice factoring for startups and disclosed invoice factoring for small businesses is an ideal financing option, because the business does not need to submit any documents for credit assessment, as the invoice factoring loan provider assesses the creditworthiness of the business’s customer, instead of the business. Disclosed invoice factoring aligns with the scale of the small businesses, providing a flexible and accessible way to manage cash flow without adding undue financial stress.

3. Leverage the Strong Credit Standing of Your Business’s Large Corporate Customers for Better Invoice Financing Rates

Reputable, established invoice financing loan providers in Singapore like Validus have strong corporate partnerships with large corporations and government-linked companies, such as SMRT, Keppel, ST Engineering, and more. If your business is a vendor supplying products or services to Validus’ corporate partners, you can benefit from even more attractive financing rates.

4. Reduce Tedious Administrative Credit Collections Work

When businesses choose disclosed invoice financing, the business’s customer settles invoice payment with the invoice factoring provider rather than with the business. This enables businesses to alleviate the administrative burden associated with accounts receivable, such as chasing customers on unpaid invoices, allowing them to focus on core business activities and growth strategies.

Non-disclosed Invoice Financing: The Discreet Approach

Non-disclosed invoice financing (also known as confidential invoice financing), on the other hand, prioritises privacy. With this option, the business’s clients are unaware of the business’s financing arrangement with the invoice financing loan provider, and the business retains control over collecting payments. This approach can be particularly advantageous for businesses that wish to maintain full control over financial related interactions with their clients, and for businesses that are concerned about revealing their financial strategies.

If your business places a high value on client relationships and communication, confidential invoice financing might be the preferred choice to prevent any potential miscommunication.

Disclosed Invoice Factoring is the More Affordable Option for SMEs to Boost Cash Flow

From a credit risk and interest rate perspective, disclosed invoice financing is the clear winner. By reducing credit risk through transparency, you create a win-win situation with your financing provider. Invoice financing loan providers are more likely to extend favourable terms due to the lower risk associated with your clientele. These terms include reduced interest rates, ultimately decreasing the cost of financing and contributing to an improved bottom-line and improved cash flow.

Get Started on Disclosed Invoice Factoring in Singapore with Validus

Don’t let cash flow constraints hinder your business’s potential for growth and innovation. By opting for disclosed invoice financing with Validus, the transparency will enable you to unlock a reliable source of working capital from your unpaid invoices at lower interest rates, compared to non-disclosed invoice financing.

Take the leap and unlock the power to prosper. Get started on your journey to enhanced cash flow and financial success – call or text us now on WhatsApp, or get a quote for disclosed invoice financing now.