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As SME business owners are aware, the consistent flow of cash is the lifeblood that sustains any business. The absence of adequate cash flow can lead even profitable businesses to insolvency.

 

Why is why, in addition to sales and marketing products and services that can delight customers or customer success to ensure customers would be satisfied, business owners must also prioritize managing cash flow. Cash flow isn’t merely essential for the ongoing operation of our company but is also crucial for realizing our business scaling ambitions.

 

As business owners, there are various strategies to enhance the business cash flow. Business owners should vigilantly monitor both incoming and outgoing cash to anticipate any potential gaps in cash flow that might emerge in the future. This entails staying informed about customer receivables, particularly if they begin to take longer to be settled, and being aware of upcoming bills and expenditures, including their supplier payment due dates. Utilizing a financial forecasting softwares or a business financial management tools can be immensely helpful in this regard.

 

To assist business owners with more cash in the bank, business owners can leverage government-supported loans such as SME Working Capital Loan. These loan options enable us to expand our business in the specific areas we desire while simultaneously strengthening our financial foundation.

 

Aside from taking bank loans as the common avenues, this is not the only options in the market. Another alternatives that business owners can tap into is invoice financing.

 

How Invoice Financing Works ?

There are basically 2 main types of invoice financing in the market.

  • Invoice Financing Purchase
  • Invoice Financing Sales

Invoice Financing Purchase 

Invoice financing purchase allows business owners to use banks funds to pay the supplier based on the invoices provided by the supplier. This allows business owners to hold on to their current cash flow and utilise 3rd party (bank) monies to pay supplier immediately and avoid late payment fees.

For Example : ABC Company purchase equipment from 123 Supplier for business operation. ABC company can apply for invoice financing from the bank and the bank will pay the invoice of the equipment to 123 Supplier. Prior to the due date of the invoice, ABC Company pay back to the bank will do.

Invoice Financing Purchase
Explanation of invoice financing (purchase)

 

Invoice Financing Sales

Invoice financing sales is the opposite of invoice financing purchase. It allows business owners to use banks funds to pay the the company first accordingly to the invoices given by the company to the customer. This allows business owners to collect immediate “payment” from the bank.

Think of it as bank paying the invoice on behalf of the customer to the company first.

For Example : Client ABC purchase product from company 123. Company123 can apply for invoice financing from the bank and the bank will pay the invoice fee on behalf of Client ABC, ABC Client will pay back to the bank.

Invoice Financing Sales
Explanation of invoice financing (sales)

 

It is important to know that both invoice financing purchase and invoice financing sales are two different kinds of invoicing financing. If you are looking to borrow money to purchase goods from your suppliers, you will need to use invoice financing purchase. If you want an advance payment on the invoices that you have sent to your customers, you will use invoice financing sales.

 

Whether it’s invoice financing purchase or invoice financing sales, the amount you get would from the bank would be considered a loan. Therefore, there will be interest charge and a fee attached to it. Your company has to repay the amount borrowed back to the bank upon the loan maturity (Invoice due date).

Alteratively, business owners can also choose to draw down a lower amount than what is stated on the invoice if you do not need to borrow that much. This way, you do not have to pay unnecessary interest charges and fees.

 

Why business owners choose invoice financing (as opposed to other business loans) is that it gives you access to funds when you need it the most. So, if you have to pay your suppliers first, you can use invoice financing purchase. If you already sold products to your customers and are waiting for payment, you can use invoice financing sales to receive your money first allowing you to give your customers a longer credit term.

 

As SME business owners, you should keep a close watch over your company’s cash flow, and to identify possible bottleneck points where you may encounter cash flow . Once you are aware that you may face a cash flow crunch, you can consider the various financing tools available to tap on if you wish to, whether it’s invoice financing purchase or invoice financing sales.

 

Need Financing ?

Enjoy complimentary consultantation with our consultants and get access to funds and receive your loan approval in the shortest amount of time by making an appointment with Beez Rev.