Invoice Financing: A User Guide

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Invoice financing refers to asset-based lending that allows small businesses to finance slow-paying invoices or accounts-receivables. This method of financing is ideal for businesses in need of consistent cash flow, such as supply chain businesses and SMEs. 

Steps to Invoice Financing 

1. Invoice your client:

When you provide a service or supply to your client, issue them an invoice for the price of the goods or the labour charges for the service. To qualify for accounts receivable financing these invoices need to be payable within a 90-day time frame.

2. Assign the invoice to the financier

Find a licensed financier that you want to work with. The financier will ascertain your eligibility and conduct the due diligence on the debtors you are invoicing, to determine if they are good credit risks. 

The financier will then stipulate or offer the financing amount they are willing to guarantee you based on the risk assessment of your invoiced debtor, and their payment behaviour. If you are happy with the arrangement and wish to continue this relationship with the financier, then you may assign other outstanding invoices to the same financier. 

3. Receive an advance on the Invoice assigned.

Based on your agreement, the financier may finance up to 80% of the invoice value. This advance may be calculated based on the size of your transaction, your industry and other risk parameters. 

The financier will send out a ‘notice of assignment’ to your invoice debtor to notify them of the assignment of the invoice. All payments thereafter will go through an account set up by the financier. 

4. The invoice debtor pays the financier

According to the 90-day payment stipulation in your invoice to your debtor, the debtor will have to eventually make the payment for the goods or the labour charges for the services. However, with the presence of the assignment, the payment is now assigned to the financier instead of to you. Typically the financier will choose to follow the historical process for collection from before the financier was introduced as it helps to create a more seamless experience for your client. 

5. You get paid the Balance

Once the financier has received the full payment from your client, they will deduct all transaction fees and charges. The remaining amount after deduction is then forwarded to your account, thus completing your agreement. 

This simple process helps ease small business cash flow problems and takes the burden of having to wait for payment all the time. There are many recognized market operators that offer invoice financing in Malaysia, ours included. If you are interested to learn more or chat with us on an invoice financing solution get in touch with us by clicking the link below. 

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