Comparing Funding Societies’ AR Financing and Traditional Banks’ Invoice Financing: What You Need to Know

Comparing Funding Societies’ AR Financing and Traditional Banks’ Invoice Financing: What You Need to Know

As a business owner, you know that cash flow is the lifeblood of your company. You need to make sure you have enough money coming in to cover expenses and keep your operations running smoothly. But when cash flow is tight, it can be difficult to access the funds you need. That’s where Accounts Receivable (AR) financing, or invoice financing, comes in. In this article, we’ll talk about what Funding Societies’ AR Financing and Traditional Banks’ Invoice Financing are all about. 

Firstly, AR financing and invoice financing are essentially the same but with a different name. 

What is Accounts Receivable (AR) Financing by Funding Societies?

Funding Societies’ Accounts Receivable (AR) Financing provides SMEs with the opportunity to access a revolving line of credit up to S$1 million, covering up to 80% of the value of unpaid customer invoices. This financing option is particularly suitable for businesses that have regular invoicing cycles and are looking to quickly obtain working capital without taking on additional debt, in as quick as 3 weeks. 

After the SME makes each repayment, the revolving credit line is automatically restored for further flexibility, thus allowing SMEs to bridge cash flow gaps and invest in growth opportunities. These funds can be used for various purposes, such as paying suppliers and staff salaries, starting new projects, acquiring new equipment or expanding operations.

Funding Societies underwrites loan applicants using a set of alternative data such as transaction information and supply chain reviews, rather than relying on a stringent set of financial records. This allows us to assess risk in a more comprehensive manner and provide financing solutions tailored to each individual business’ needs. By doing so, SMEs can access flexible financing, fast.

AR Financing by Funding Societies allows either notified or non-notified arrangements to suit different business requirements. 

What is Invoice Financing by a Traditional Bank? 

Invoice financing by a traditional bank also allows SMEs to borrow money against your unpaid invoices. This is an attractive option for businesses with large amounts of accounts receivable, because it can provide you with quick access to capital without having to wait for your customers to make payments. 

Similarly, with bank invoice financing, businesses can use invoices as collateral for the loan, and most banks will advance up to 80% of the invoices. However, banks typically require 2 months to approve and onboard customers for these loans. 

Moreover, banks take extra precautions when assessing the viability of an SME loan applicant, including conducting a thorough review of your business plan and financials. This is due to the fact that SMEs typically have fewer resources and less access to capital than larger corporations, making them more vulnerable to financial challenges. Furthermore, SMEs may not have established credit histories or collateral which banks require in order to assess the risk of lending money. 

Ultimately, banks put these stringent policies in place to ensure that the loan will be repaid on time and in full, protecting themselves from potential losses due to defaulted loans.

Overview of the Key Differences between the Two Products

Comparing Funding Societies’ AR Financing and Traditional Banks’ Invoice Financing: What You Need to Know

Advantages of Funding Societies’ AR Financing Product

1. Quick Turnaround Time for Loan Approvals and Disbursements

Automation such as artificial intelligence (AI) and machine learning (ML) streamlines the lending approval process. With the use of AI-driven systems, Funding Societies can quickly analyse large amounts of data in order to determine a customer’s creditworthiness and provide an accurate risk assessment.

2. Flexible Repayment Terms

For borrowers, having more flexible repayment terms can help you manage your finances better. That’s why we provide tenures from 30, 60, 90 to 120 days to best fit your business requirements. You can adjust the amount of the payment or the frequency of payments to match your income and expenses, helping you to avoid late payments or defaulting on loans. 

3. Ability to Leverage Digital Platforms for Easier Application Processes and Faster Disbursements

Utilisation of cloud computing technology means that Funding Societies can store customer information securely in one place and make it available across multiple devices, allowing for even faster processing times by our sales, operations, and credit underwriting teams. 

Customers can also get personalised help or access their accounts from anywhere at any time through our mobile app, making it easier for them to manage their finances on the go.

Advantages of Traditional Bank’s Invoice Financing Product

1. Established Track Record in Business Lending and Credit Management

Banks are typically more established and have been around longer than most FinTech companies. This gives them an advantage in terms of having greater experience in the industry, an arguably better understanding of the market, and stronger relationships with regulatory bodies.

2. Competitive Rates

Banks can provide more competitive rates because they have access to larger pools of capital and are able to leverage economies of scale in order to provide lower rates. They then pass on the savings to their customers. As traditional financial institutions, banks also benefit from government regulations that protect them from market fluctuations, allowing them to offer more stable rates over time. 

3. Physical Branches Across The Country 

With a wide range of branches and representatives available across the country, businesses can easily access face to face advice and support whenever they need it, especially if they are not digitally savvy. This makes it easier for these businesses to manage their finances effectively and get the most out of their invoice financing services.

How to use Invoice Financing for your SME?

When deciding which type of invoice financing is best for your small business, it’s important to consider your needs and goals. Traditional banks may offer lower interest rates but they can be difficult to qualify for and require collateral as well as a good credit history. FinTech companies on the other hand provide quick access to capital without requiring collateral or a good credit score, but it may come with higher interest rates depending on the lender. Ultimately, it’s important to weigh all factors before deciding which option is best for you and your business.

Find out more about how to use Funding Societies’ AR Financing product to unlock cash flow for your business. 

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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.

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