How SMEs Can Turn Invoices Into Cash

How SMEs Can Turn Invoices Into Cash

Do you know any business that is facing cash flow issues? Here is how to identify businesses that can potentially benefit from our Invoice Financing solutions.

What are invoices & what sort of businesses issue invoices?

Invoices are usually issued by a company as official notice for its customer to make payment for goods and services rendered. Invoices are typically used by companies engaged in supplying products or services in a B2B (Business to Business) model as opposed to a B2C (Business to Consumer) model. For example, a B2B business would be a food importer supplying to supermarkets while a B2C business would be the supermarket selling the various food products to individual consumers.

Why do companies with a predominant B2B model tend to experience more cash flow issues as opposed to a B2C model?

You might have seen “14, 30 or even 60 days terms” stamped on invoices. What it means is that the company provides a credit term of a number of days for its customer to make payment. This is usually due to three main reasons:

1. Operational Constraints

The customer might not be able to issue cheques immediately or pay cash on delivery due to internal payment processes.

2. Competitiveness

It may be industry standard to provide credit terms of 30 days and the company will be uncompetitive if it demanded cash on delivery. On the flipside, the company could provide a better value proposition to its customers if it extended 60 days credit terms instead of 30 days.

3. Bargaining Power 

When supplying to a relatively larger customer, the customer  may dictate a longer credit term to optimise its own cash flow (often at the expense of the SME).
For example, an SME may be supplying inventory to a multinational corporation (MNC),in order to secure the contract to supply to the MNC, the SME may have to adopt the MNC’s payment policies.

The above reasons will mean that the B2B company will collect their revenue later while having to meet its own payment obligations such as rent and salaries, giving rise to a “tight cash flow” situation. In a B2C model, such as a cafe for example, payment is collected from the customer immediately upon consumption of the meal. The cafe will not experience a delay in collecting payment as the bill is settled on the spot.

How can sending these businesses to Funding Societies help improve their cash flow?

Once you refer the company to Funding Societies, we will assess the trading history and payment trends of the company’s customers in order to determine the amount of financing (quantum) and number of days of financing required (tenor). Once we complete the necessary checks, the company will be a customer of Funding Societies if it accepts our terms and conditions for Invoice Financing. The company will be able to submit its invoices that are pending collections to Funding Societies.

SMEs get cash instantly when they pledge their invoices. They get up to 80% of the invoice value with an early repayment option at no additional cost.

To sum it up, businesses with the following attributes will be best served by Funding Societies’ Invoice Financing solution:

  1. B2B Business Model
  2. Provides credit terms and collects beyond those terms
  3. SMEs serving relatively larger customers such as MNCs

If you hear friends or business associates lamenting of long collection cycles, please feel free to share our Invoice Financing solution with them and get rewarded through our SME Referral Programme.

Refer an SME today and stand to earn a referral fee of up to 0.2% on the loan amount disbursed. For example, if an SME takes up a loan of S$500,000, you stand to earn up to $1,000 in referral fees!

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