66% of businesses in Singapore struggle with the increase in overall business costs. Are you a small business owner struggling to find capital for your venture? Accounts Receivable (AR) financing may be the answer. This blogpost will give you a guide to Accounts Receivable (AR) financing in Singapore and how it can help small businesses grow and thrive.
We’ll discuss the advantages and risks involved with using AR financing, as well as the steps involved in setting up an AR financing agreement. Finally, we’ll provide some tips on how to get started with AR financing and how to choose the right lender for your business. Whether you’re just starting out or have been in business for years, this blogpost will help you understand the basics of AR financing and whether or not it is right for your business.
Table of Contents
Overview of the Accounts Receivable (AR) Financing Process
Definition of Accounts Receivable (AR) Financing
AR Financing is a type of financing solution that helps businesses to improve cash flow and manage your accounts receivable. It is a form of short-term financing, which allows businesses to receive funds from the lender against your outstanding invoices. This type of financing helps SMEs to increase working capital, enabling you to purchase new materials, secure new projects, hire more staff and expand operations.
How Does Accounts Receivable (AR) Financing Work?
The process of AR financing starts with the business submitting its invoices to a lender. The lender will then review the invoices and decide whether they are eligible for funding. If approved, the lender will advance funds equal to a percentage of the total value of the invoices, for example 80%. The remaining balance, minus any fees, will be paid once the customer pays off their invoice.
What Types of Businesses Can Benefit from Accounts Receivable (AR) Financing?
In Singapore, AR Financing is a common option among SMEs because it is convenient and fast.
- Start-up Companies
New businesses often lack the credit history or collateral needed to secure traditional bank loans. AR financing offers start-ups a way to access working capital without having to rely on other forms of collateral.
- Seasonal Businesses
Seasonal businesses may have difficulty managing cash flow during slow periods due to reduced sales and delayed payments from customers. With AR financing, these businesses can access funds quickly and easily without having to wait for customer payments.
- Service Providers
Service providers may face difficulty collecting payment from customers due to long payment cycles or invoice disputes. AR financing allows these businesses to receive the funds they need upfront in order to pay for immediate costs such as salaries.
Manufacturing companies often face large upfront costs when it comes time to produce goods and services, but they often don’t receive payment until after delivery has been made and accepted by the customer. With AR financing, manufacturers are able to access working capital quickly so they can cover production costs without having to wait for payment from customers.
- Wholesalers and Distributors
Wholesalers and distributors often find themselves in a similar position as manufacturers when it comes time for them to purchase new inventory and supplies from suppliers while waiting on customer payments for goods already delivered. With AR financing, wholesalers and distributors can access working capital quickly so they don’t have to wait for customer payments before making necessary purchases from suppliers.
What Are some Risks Involved with Accounts Receivable (AR) Financing?
- Non-payment by customers
As a business, if your customers fail to pay their invoices on time or at all, then you may not be able to recoup the cost of goods and services that you have purchased through using AR financing. This could lead to financial losses for your company, as well as damage to your company’s reputation if customers become disgruntled due to late fulfilment of services.
- Potential increase in debt
Since AR financing involves borrowing money from lenders, this could result in a greater amount of debt than what would have been necessary, especially if your customers do not make payment on their invoices on time. In the event that your business does not have sufficient cash flow or income to cover its debts, then it could end up in financial trouble as a result.
- Increase in total interest rates over time
If your business takes out multiple loans through AR financing, there is a risk that interest rates could increase over time. This could cause monthly payments to become more expensive and put a strain on your company’s finances if it cannot keep up with these higher costs.
How to Get Started with Accounts Receivable (AR) Financing in Singapore
There are several financial institutions in Singapore that offer AR Financing, so businesses can easily find one that suits their needs best after doing some research. Here are some tips to guide you with AR Financing.
- Finding a lender that offers AR Financing services
When looking for a lender that offers Accounts Receivable (AR) financing services in Singapore, it is important to research the different options available and compare the terms and conditions offered by each lender. You should also consider factors such as the interest rate, repayment terms, and any other fees or charges associated with the loan. Additionally, make sure that the lender is reliable and trustworthy by checking their credentials, reviews, and customer service ratings.
- Understanding the terms and conditions of your loan agreement
Before signing an agreement with a lender for an AR loan, you must ensure that you understand all of the terms and conditions related to your loan. This includes understanding the interest rate, repayment terms, fees or charges associated with your loan, as well as any potential penalties or consequences if you are unable to make payments on time.
- Steps to follow when applying for an AR Loan
Once you have chosen a lender, there are several steps you need to take in order to apply for your loan. It varies from lender to lender, but typically, you are required to provide documentation such as financial statements reflecting your company’s financial standing and trade cycle, invoices from customers who owe money to your business, and other supporting documents required by the lender.
- How long does it take to get approved for an AR Loan?
The length of time it takes to get approved for an AR loan in Singapore varies depending on the specific requirements of your chosen lender. Generally speaking though, most traditional lenders can approve your application and disburse first funding within 1.5 months depending on how quickly they receive all necessary documentation from you. Alternative financing options, such as FinTech lenders, are able to approve the facility in as quick as 3 weeks and disburse financing in 48 hours.
Funding Societies’ Accounts Receivable (AR) Financing Solution
How It Works
Step 1: SME sends invoice to customer
Step 2: SME applies for AR Financing line with Funding Societies and gets approved for amount
Step 3: SME submits to Funding Societies the first and all subsequent invoices for drawdown of funds up to approved credit limit
Step 4: SME repays the funds previously drawn-down from Funding Societies, including any fees
- All Singapore registered businesses with at least 30% local shareholding and have been in operation for at least six months.
- 100% foreign-owned companies are welcome to apply under notified arrangements.
Features and Benefits
- Quantum up to S$1 million
- Covers up to 80% of the value of your unpaid invoices. The remaining balance less fees will be paid out to your business by Funding Societies once your customer has paid off their invoice in full.
Hear what more happy customers like Supernova Brands, a global health & beauty social e-commerce company, have to say about our Accounts Receivable solution!
1. Is AR Financing the best option for my business?
For more information on how AR Financing compares against a common option like Accounts Payable (AP) financing, click here.
2. What documents do I need to submit for approval?
- 2 years’ financial statements, or up-to-date management financial statements, whichever is applicable
- Latest 6 months’ bank statements
- Director(s) and Shareholder(s) NRIC or Passport, latest 2 year NOA and CBS report
- Additional documents may be required. This is determined on a case by case basis. Our team will reach out to you once we receive your application.
Break Free from Cash Flow Limits Today
Accounts Receivable (AR) financing is an innovative form of business financing that helps companies unlock receivables and get access to much-needed capital. With AR financing, businesses can grow and increase their cash flow, allowing them to take on larger projects and expand their operations to stay competitive.
For more information on how AR financing can unlock cash flow for your business quickly, visit our website today and find out how we can help you get the resources you need to keep your business running smoothly.
Disclaimer: The information provided to you in this blog post is intended only for general information purposes only and does not constitute legal or other professional advice on any subject matter. The materials and the information provided are not intended to be and do not constitute an advertisement or solicitation. In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for use of such information by you or any unauthorised third party.
Accounts Receivable Financing is fulfilled either by Funding Societies Pte Ltd, or FS Capital Pte Ltd (in partnership with Enterprise Singapore), depending on the customer profile.
- Pioneer to Leader: Meet Vikas Jain, FSMK’s First Employee - September 26, 2023
- Harvesting Opportunities: Innovations in Financing Capital-intensive Startups - August 22, 2023
- Enhancing Business Cash Flow through Accounts Receivable Financing - August 17, 2023