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Invoice factoring

Find out about the process of selling off outstanding invoices to receive quick funds.

Invoice factoring in Singapore may be a useful tool for businesses struggling with cash flow. These companies tend to be SMEs who rely on revenue from other businesses. Read on to find out more about invoice factoring in Singapore, including how it works, potential providers, and the pros and cons involved.

Name Product Interest Rate From Maximum Loan Amount Minimum Loan Term Maximum Loan Term Collateral-free
Validus Invoice Financing
Validus Invoice Financing
30 days
150 days
Boost business’s cash flow instantly by leveraging credit on unpaid invoices.

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What is invoice factoring?

Invoice factoring is a financial service whereby you sell your receivables account to a third party known as a “factor”. Following this, you’ll receive upfront funds based on your receivables accounts. Companies tend to make use of this service by selling their outstanding invoices to a factor to receive quick funding. In summary, you can expect your factor to offer two main services: providing funding based on your invoices, and managing the customer payment schedule.

How exactly does invoice factoring work?

While the factoring process varies depending on your business’s industry, it typically follows these steps:

  1. Your business provides goods or services to other businesses or government agencies.
  2. Your business issues invoices to your clients.
  3. You apply to sell your unpaid invoices to a factoring company.
  4. The factoring company reviews your application and offers an advance of 80- 90% of your invoices’ value upfront.
  5. Your clients repay their invoices to the factoring company.
  6. You receive the remaining 10-20% value of your invoices, with the fee subtracted.

In many cases, the factoring company handles the invoices after you sign up. However, some might allow you to maintain that relationship with your client.

How much of an advance can I get?

Advance rates differ across providers, with some offering up to 90% of the invoice amount within a day. Factoring companies also have minimum and maximum invoice values, with limits typically up to S$1,000,000.

How long does invoice factoring in Singapore last?

Many factoring companies require you to sign up for a contract that lasts between 12-36 months. Others offer spot factoring, which allows you to renew your contract as needed each month.

How much does invoice factoring in Singapore cost?

The main cost of invoice factoring in Singapore is the factor fee. This fee is typically a percentage of your invoices’ total value. How this works depends on the fee structure your factoring company uses. Here are some common fee types you may encounter:

  • Tiered factor fees: This refers to when a company charges a fee based on the amount of time it takes for your clients to fill their invoices. Some lenders charge the same fee every few days, weeks or months. Others might impose a slightly higher fee for the first 30 days and a lower fee for every 10 or 15 days after.
  • Fixed factor fees: This one-time fee is charged regardless of how much time clients take to satisfy their invoices. It is most prevalently used in the trucking and transportation industries.
  • Prime plus fees: Companies might calculate your fees based on interest. Although the prime rate is a benchmark rate that changes based on the state of the lending market, your provider is likely to put in place minimum and maximum interest rate fees.

Is my business eligible for invoice factoring in Singapore?

Most factoring companies have flexible eligibility requirements. Unlike business lenders, factoring companies aren’t usually concerned about your revenue or personal credit score.

Instead, companies offering invoice factoring in Singapore consider:

  • The value of your invoices. Some factoring companies impose minimums and maximums for your invoices’ value.
  • When the invoices are due. Most factoring companies work with invoices due up to 90 days.
  • The type of clients. Factoring companies deal with invoices from other businesses or the government. If you’re looking for an advance on future consumer sales, consider a merchant cash advance instead.
  • Details of your business: Many factoring companies in Singapore require borrowers to be incorporated in Singapore, hold an ACRA business profile and have at least 30% local shareholding.

Comparing invoice factoring providers in Singapore

Here are some providers in Singapore who, at the time of writing on March 2020, offer invoice factoring services:

  • Finaxar Online Factoring: An online factoring service that offers a quick sign-up process. Applications will be approved within 3 working days of submission, and once approved, you will receive an upfront payment of up to 80% of your invoice in 24 hours.
  • ORIX Receivable financing: Generate quick liquidity without having to put up collateral. Enjoy invoice factoring cash flows for up to 5 years and a quick turnaround period of 3 business days.
  • Bibby Invoice Factoring: A confidential invoice factoring service in Singapore. With a 24 hour turnaround time, this provider is best for businesses looking for immediate cash flow.
  • GoldBell Financial Services: Alleviating tight cash flow situations by providing up to 90% of your invoice amount on the same day.

Benefits of invoice factoring in Singapore

Why should you consider invoice factoring in Singapore? Consider if these factors appeal to you:

  • Reduced cash flow gaps. Factoring allows you to take on more projects and bring in more money without having to wait to get paid.
  • Low or no credit requirements. Most factoring companies don’t require a minimum credit score to work with business owners. Even if they do, most accept poor credit.
  • Available to newer businesses. If your factoring company is one of the few requiring a specific time in business, it’s usually less than a year.
  • No repayments. After you sell your invoices, you don’t have to go through the hassle of monthly repayments or tracking loans.
  • No collateral. You don’t have to put any of your business assets on the line to qualify for this advance.

Drawbacks of invoice factoring in Singapore

However, be sure to take note of these potential drawbacks before committing to invoice factoring.

  • Can be expensive. Factoring is among the costlier types of business financing and isn’t an ideal long-term solution.
  • It’s an advance, not a loan. While invoice factoring can be a good source of working capital, it’s not an ideal solution if you need funds to expand or take on larger projects.
  • You can lose touch with your clients. After you sell your invoices, the factoring company typically handles payment requests.
  • Your customer’s bad credit affects the cost. Many factoring companies look at your clients’ credit scores to determine your fees, not yours.
  • You might be responsible for late invoices. While nonrecourse factoring is less expensive, your company risks having to buy back invoices your clients are late to fill.

Bottom Line

Invoice factoring in Singapore is a good option to consider for short-term cash advances. However, it is not a loan and should not be used for growth or meeting long-term expenses. Be sure to weigh your pros and cons, and explore the option of business loans before settling on invoice factoring.

Frequently asked questions

Are factoring companies regulated?

Factoring companies in Singapore are required to hold a Capital Markets License, but they are still subject to less stringent regulations than traditional banks. As a result, you should be detailed and cautious when researching potential invoice factoring options in Singapore.

What should I take note of when applying for invoice factoring?

Always read the fine print before committing to invoice factoring. Besides this, you should make some time for paperwork before applying for invoice factoring, so as to provide factors with all the relevant documents for your application to be approved.

Is there a difference between invoice factoring and invoice financing?

Yes. Invoice financing uses your business’s unpaid invoices as collateral for a loan, while invoice factoring involves selling your invoices to another company.

What happens if my client doesn’t pay?

This depends on the factoring company. If your provider offers recourse factoring, then it will be your business’s responsibility to pay your client’s undue bills. On the other hand, providers offering non-recourse factoring will absorb the cost.

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