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Explore options to borrow based on invoices owed by your customers.
Invoice financing for businesses in Singapore might be a lower risk option for commercial borrowing. Unlike other types of lending, you don’t have to secure your loan with collateral. But you must have a steady stream of revenue that is backed up by invoices from your clients. Read on to find out more about invoice financing in Singapore including how it works, potential providers and whether it might suit your business needs.
What is invoice financing?
Invoice financing allows businesses to borrow based on invoices that they are owed by their customers. This provides SMEs with the chance for a useful short-term financing option, with typically lower interest rates than other short-term financing methods.
How does invoice financing work in Singapore?
Invoice financing allows businesses to obtain loans based on the value of payments they are owed from their customers. Lenders typically cover 70 – 90% of a business’s total invoices. This funding tends to be offered for short durations, from 15 days to 1 year.
Invoice financing is considered less risky for lenders, in comparison to other types of business loans, as the borrower has already delivered to customers and has a reasonable expectation to be repaid. As a result, interest rates related to invoice financing in Singapore tend to be lower than similar short-term loans. Such financing is offered both by banks and crowdfunding platforms. However, banks tend to be more selective in offering invoice financing and generally offer lower interest rates to approved applicants.
How much does invoice financing in Singapore cost?
An advance fee may be charged by lenders, which is usually between 2-5% of the invoice amount. The exact costs involved will depend on the nature of your business and the lender’s requirements.
How to compare invoice financing providers
Here are a few things to consider before you decide which option for invoice financing in Singapore may be best for your business:
- Advance fees. Funding providers offer advanced fees based on your business’s financial security and credit strength.
- Additional fees. Some providers will charge you exchange and transaction fees along with discount fees from early payment offers made to your clients.
- Loan amount. Many invoice financing providers are set up to offer a personal, efficient service to small businesses. However, bigger companies may be better suited to a traditional bank that can handle a larger quantity of invoices.
- Repayment options. Make sure you are comfortable with the repayment options provided by the lender.
Invoice finance providers in Singapore for your consideration
Here is a list of providers who, at the time of writing on March 2020, offered merchant cash advances in Singapore:
- Validus Capital Invoice Financing: Receive up to 80% of your invoice amount and boost your business’s cash flow. Loan terms range from 30-120 days.
- CapitalMatch Invoice Financing: Get from S$50k to $500k and boost your business’s cash flow. Enjoy a 24-hour cash disbursement time period and up to S$2 million worth of loans.
- LoanOwl Enable Invoice Financing Microloan: Expect a flat interest rate of 3.7% p.a. to meet your short-term liquidity needs.
- IFS Capital Limited Invoice Financing: Enjoy quick accessibility to cash advances and costs of up to 4% p.a.
- OCBC Invoice Financing: Receive loans from a traditional bank with an interest rate of 0.25% of the invoice amount.
Benefits of invoice financing
These are some pros that make invoice financing an appealing option to many SMEs in Singapore.
- No ongoing repayments. Without the worry of ongoing repayments, you can focus your efforts elsewhere.
- No secured assets. You don’t need to use an asset, such as your business’ property or a vehicle, against this type of borrowing.
- Plan your finances effectively. Because you know when the money will be in your account, you can make decisions on future expenses with more confidence.
- A flexible service. Unlike a long-term loan, you can decide exactly how long you require the services of an invoice financing provider.
Drawbacks of invoice financing
Although invoice financing might be a good option for your SME, but sure to take note of these potential drawbacks before choosing a provider:
- Less control over total funds. Invoice financing doesn’t give you the freedom to choose an exact amount you borrow since the loan is a set percentage of the invoice amount.
- No control over client payments. Your loan could rack up hefty fees if your client takes longer to pay you.
- Potentially higher costs. Because it’s a type of short-term loan, invoice financing often comes with high costs, and higher fees than traditional bank loans or overdrafts.
It’s important to be aware that some SMEs may find it challenging to find lenders who are willing to accept them for credit.
Invoice financing for businesses in Singapore could be a good short-term financing solution for SMEs with a significant amount of accounts receivable in the form of invoices. This form of financing may offer lower interest rates when compared to other short-term borrowing options. Additionally, some lenders offer cash disbursement very quickly, which could be beneficial to your business if you are seeking capital support immediately. However, SMEs without significant invoice amounts would be better off considering other short-term financing options, such as micro loans or potentially another type of business loans.
Frequently asked questions
Is my business eligible for invoice financing in Singapore?
Although eligibility requirements differ across providers, your business should generally be incorporated in Singapore and meet certain revenue requirements.
What’s the difference between invoice financing and invoice factoring?
Invoice financing involves more of an ongoing relationship between the borrower and the lender. The borrower is often charged on a monthly basis, or based on the time period between the invoice submission and repayment of the loan. On the other hand, invoice factoring is a process where you sell your invoice to a third-party company, which pays you for that invoice and collects money from your clients directly. This works as a one-time service.
Whose responsibility is it to collect invoices from customers?
The responsibility falls on you, the business acting as the borrower.