Deal Cash Crunch with Invoice Financing

Invoice Financing

A pertinent business problem for all businesses is the shortage of funds. Invoice financing has emerged as an excellent way of converting receivables from customers into immediate cash. It is gaining tremendous popularity in Malaysia. Many eminent banks and financial institutions like OCBC Bank, CapitalBay, and CIMB provide the services of invoice financing for the easy availability of working capital. Invoice financing or factoring is also referred to as accounts receivable factoring or debtor financing.

The Process of Invoice Financing

Invoice financing or factoring services help businesses receive money from banks and financial institutions in exchange for the invoices they have issued to their customers. So how exactly does this work? The steps involved are:

  1. The company delivers goods/performs services to its client and raises an invoice for it.
  2. The customers would need some time to pay back the amount, usually between one to three months.
  3. The said invoice is presented to a financial institution for factoring.
  4. The financial institution will assess the invoices.
  5. The financial institution then provides quick cash to the business on the basis of these invoices. The advance is typically 80-90% of the invoice amount.
  6. The Financial Institution collects the amount from the customers on behalf of the client on the due date.
  7. The remaining 10-20% of the invoice is remitted to the business after deducting any and all charges.

The process is simple, easy and is extremely beneficial.

Waiting to get paid is one of the biggest concerns of B2B companies. The problem is all the more evident for companies with a seasonal business or for those with long payment cycles. Lack of funds can seriously disrupt the operations of a business and they may have to seek risky and costly financial assistance from other sources. Invoice financing provides a quick, easy and less risky remedy to B2B businesses. Many financial institutions in Malaysia are encashing customer’s invoices in as little as 24 hours! However, there are formalities to carry out before one can get started:

  • The business needs to fill in an application and submit requisite documents. There are generally two types of financing available in Malaysia: recourse factoring and non-recourse factoring. The business may evaluate both options while deciding upon the type of financing. Common documents required are – audit report, director’s NRIC, sample invoices, etc.
  • The financial institution may require 2-3 days to process the application.
  • After registration is complete, the business can select which invoices need financing.
  • The financial institution will provide up to 90% (the amount of financing is entirely up to the institution) of the invoice amount after assessing the invoice.
  • The remaining amount shall be paid after it is received from customers where a fee will be deducted, for services or the like. 

Benefits of Invoice Financing

Invoice financing is a powerful tool to strengthen cash flow.  It has numerous benefits. Some of which are enumerated below:

1. Quick access to cash:

The business is in constant need of working capital to carry out its operations. With adequate cash in hand, the business can continue its operation in full swing. Thus, there are sufficient funds for other business purposes. Quick cash availability can help a business in gaining a strategic advantage over competitors. Easy and quick processing is the greatest benefit of invoice financing.

2. Flexible loan amount:

With the loan amount being flexible, the business can convert only those invoices which pertain to its current cash requirement. This will ensure that there is no unwanted borrowing stress on the business. A traditional loan can be very costly when the business needs only a small number of funds. But almost any invoice can be converted into cash as and when is required.

3. Flexible repayment options:

Most funding institutions in Malaysia provide flexible repayment options. There are options to make partial or early settlements. This means the client will need to pay interest or charges only for the period it has used the advance. It also encourages cash management in the business. The company will try to repay debt quickly to avoid more interest charges.

4. Customer relations:

Invoice financing encourages healthy relationships with customers by allowing them credit periods.  The business will be in a better position to allow credit sales to its customers. Customers are the reason for the survival of businesses.  A happy customer is a returning customer and would mean better future sales.

5. Better credit management:

Invoice financing helps in streamlining business activities as the company need not worry about collecting cash from the customers. This is handled by the financial institution professionally. It also ensures a healthy customer relationship. The company, on the other hand, can focus on more productive areas. Thus the company can work on its core competence area.

6. An easy and cost-effective way of procuring funds:

The process of lending has become more costly and more difficult as more and more companies are opting into debts funds instead of equity. To procure loans a business needs to offer security and collateral. This also poses a risk on a company’s assets. This could be avoided if invoice financing is an option as a source of finance.

7. Complementary source of finance:

Invoice financing can be opted into along with other sources of financing. The only pre-requisite is the genuine invoices or bills raised against customers. It is the right option when the company needs an additional source of finance.

Invoice financing can rightly be called a “win all” strategy. The business is happy as it is able to procure easy and quick credit, the customers are happy as credit is easily available and the finance house is also happy as it has ample business in hand. This method will also mean more prosperity for the entire economy. It is high time; that businesses try newer sources of finance in addition to the conventional sources. This will also diversify the source of funding and mitigate risk to a great extent. So the next time when your business requires finance, do consider Invoice financing, it will surely prove beneficial to your business.


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