Quick answer: Invoice financing turns unpaid invoices into cash within days and is approved mainly on the strength of the invoices and the buyers behind them, but it costs more per dollar financed. A traditional loan is usually cheaper over time but takes weeks to approve and often needs collateral or a strong credit history. The right pick depends on how fast cash is needed and how established the business is.

Invoice Financing vs Traditional Loans: Side-by-Side Comparison

Factor

Invoice Financing

Traditional Loans

Speed of funds

Typically a few days, once invoices are submitted

Weeks to months for approval and disbursement

Approval basis

Value and strength of your invoices/buyers

Your business’s credit history and financials

Collateral

The invoice itself; no separate collateral needed

Often requires collateral or a personal guarantee

Balance sheet impact

Advances cash against existing receivables; accounting treatment depends on how the facility is structured

Recorded as a liability on the balance sheet

Best suited for

Businesses with strong sales but slow-paying customers

Businesses with an established credit history and longer-term funding needs

Cost

Generally higher per dollar financed

Generally lower interest, but with stricter eligibility

Invoice financing differs from a traditional loan in what it is built on: outstanding invoices rather than credit history. Funding Societies’ Accounts Receivable Financing (previously called Invoice Financing) works this way, advancing cash against unpaid invoices so a business does not have to wait out its customers’ payment terms.

What is an invoice?

An invoice is the document that officially records a sale between a buyer and a seller. It captures the transaction details and payment terms, and specifies how the buyer can pay, from traditional methods like cheques and telegraphic transfers to modern options such as PayNow.

What is invoice financing?

Invoice financing helps firms improve cash flow by getting paid on outstanding invoices sooner instead of waiting out the customer’s credit term. It exists because customers often can’t, or won’t, pay immediately: operational constraints delay payment, and firms may extend longer credit terms to stay competitive or simply lack the leverage to shorten them.

Invoice financing lets a firm turn those unpaid invoices into cash, making it an alternative to a traditional loan when working capital is tied up in receivables.

How does invoice financing work?

Once the work behind an invoice is complete, or the order it covers is fulfilled, the firm submits the invoice to a financier (the lending company).

The financier advances a pre-agreed proportion of the invoice, typically 70% to 85% of its value, directly to the firm’s bank account. The firm can use those funds for salaries, rent, debt repayment, expansion, or any other operating need.

Advance rates vary by provider. Funding Societies’ Accounts Receivable Financing page states financing of up to 90% of the invoice value.

Financing can be structured as Notified or Non-notified Invoice Financing. The difference is whether the customer is told that their invoice has been pledged to a financier.

A related structure, the invoice financing line, works as a credit facility: the provider assesses a firm’s overall trade transactions and creditworthiness to set an approved limit, then the firm draws against that limit repeatedly without resubmitting every invoice for approval. Funding Societies’ Accounts Receivable Financing offers credit lines up to S$1 million. With a S$1 million limit, for example, a firm can draw down several times up to that amount, and once buyers pay their invoices the limit is available again for future drawdowns.

Depending on the structure, either the firm or the financier collects payment from the customer. Fees are deducted from the remaining balance before it’s remitted to, or claimed by, the financier under the pre-agreed fee structure.

What are the advantages of invoice financing?

Invoice financing typically doesn’t require separate collateral, because the invoice itself is the security, so a firm’s loan history and credit score matter less than they would for a traditional loan. Funding Societies instead looks at the value of the invoice and the strength of the buyer or supplier.

This makes invoice financing more accessible to younger firms that don’t yet have an extensive credit history but do have a strong sales position, since traditional loans tend to weigh business history heavily and can be hard for newer SMEs to qualify for.

It’s also faster: the invoice financing process generally moves quicker than a traditional loan application, and firms can typically convert up to 85% of their invoices into usable cash. With an invoice financing line, firms save additional time because the facility is pre-approved, so each drawdown doesn’t need a fresh application.

Because the financing limit scales with the size of a firm’s invoices, it can grow alongside the business, unlike collateral-based lending, which is capped by the value of the underlying asset.

What are the disadvantages of invoice financing?

Invoice financing has trade-offs alongside its benefits.

Firms don’t receive 100% of an invoice’s value, so it’s worth checking whether the advanced amount actually covers the need. Lenders also tend to avoid old invoices, so a firm needs a steady stream of recent, qualifying invoices to keep funding amounts up.

There’s a risk of over-relying on invoice financing as a substitute for fixing the underlying cash flow problem, for example using financiers to chase payments instead of addressing why customers pay late in the first place. Over time, this can also mean losing the customer touchpoint that comes with handling collections directly, which can affect the client relationship.

Where a financier offers non-notified financing, the pledged invoice serves as their collateral, and they bear the risk that the invoice turns out to be inflated, disputed, or fraudulent. That’s why financiers apply measures such as control accounts and thorough documentation checks before advancing funds.

What types of invoice financing are there?

There are several types of invoice financing, each suited to a different level of control and cost: invoice factoring, invoice discounting, selective invoice financing, spot factoring, and online auctioning.

What is invoice factoring?

Invoice factoring bundles financing with credit management and collections. The factor, an independent finance provider or bank, takes over invoice collection, freeing up the firm’s time and administrative resources. It suits firms with limited staff to spare on credit control.

In this arrangement, the firm sells its invoices to the factor at a discount in exchange for immediate cash. It’s worth doing due diligence on the factoring company to confirm the terms fit the business’s needs.

Funding Societies’ Accounts Receivable Financing supports both notified and non-notified arrangements, and tenors of 30, 60, 90 or 120 days.

What is invoice discounting?

Invoice discounting works like factoring, but the firm keeps control of its own sales ledger, continuing to collect payments and follow up with customers directly. It suits firms that already have a strong, disciplined credit control process and want to keep that customer relationship in-house.

What is selective invoice financing?

Selective invoice financing lets a firm choose which invoices to finance, rather than submitting its entire sales ledger. This limits exposure to write-off risk while letting the firm keep ownership of collections on the invoices it doesn’t finance.

What is spot factoring?

Spot factoring goes a step further than selective financing: the firm submits one specific invoice at a time, and the lender handles collection on that invoice. The extra convenience and control it offers is also why it tends to cost more than other invoice financing options.

What is auctioning online?

Online auctioning digitises the process: a firm selects the invoice it wants to finance, then lenders bid competitively on an online platform for the right to finance it, giving the firm more visibility into pricing before committing.

Funding Societies Accounts Receivable Financing at a Glance

Funding Societies’ Accounts Receivable Financing, fulfilled by FS Capital Pte. Ltd., is the product behind most of the points above. The main terms, as stated on the product page:

Feature Accounts Receivable Financing
Credit line Up to S$1 million
Financing amount Up to 90% of invoice value
Tenor 30, 60, 90 or 120 days
Arrangement Notified or non-notified
Business type Singapore-registered Pte Ltd or LLP
Shareholding At least 30% held by a Singapore Citizen or Permanent Resident
Operating history At least 6 months

No separate collateral or minimum annual turnover is listed on the page. Rates and fees are not published; costs are disclosed upfront as part of the offer.

Bank Invoice Financing vs. Fintech Invoice Financing

Banks also offer invoice financing against unpaid invoices. Their strengths are an established lending track record, often lower pricing, and branch-based support for businesses that prefer face-to-face service. The trade-off is process: banks typically assess a business plan and financials in more depth, and onboarding can take noticeably longer than with a digital lender.

Fintech lenders such as Funding Societies use a digital application and assess transaction data and the strength of buyers alongside financial statements, which suits businesses without a long credit history. Pricing is generally higher in return for the speed and wider eligibility. For a broader comparison of bank, government-backed and fintech lending, see business loans in Singapore compared.

Which one should you choose?

When cash is needed within days, invoice financing is often the better fit, especially if the invoices come from creditworthy buyers. A business with an established credit history that needs a larger or longer-term facility, and can wait weeks for approval, may find a traditional term loan costs less over the life of the funding. Many SMEs use both: a traditional loan for planned, longer-term capital needs, and invoice financing to smooth out short-term cash flow gaps.

How to Apply for Accounts Receivable Financing

The Accounts Receivable Financing application follows these steps:

  1. Apply online. Complete the application on the Funding Societies product page with business details and the invoices to be financed.
  2. Prepare the documents. The page lists 2 years of financial statements or up-to-date management accounts, the latest 6 months of bank statements, NRIC or passport for directors and shareholders, the latest 2 years of Notice of Assessment, and a CBS report. Additional documents may be requested case by case.
  3. Review the offer. Funding Societies assesses the application and sends an offer setting out the financing terms and costs.
  4. Receive funds. Once the offer is accepted, funds are paid into the business’s bank account and repaid within the agreed tenor of up to 120 days.

Funding Societies also offers a Trade Term Loan, a reusable limit of S$100,000 to S$300,000 valid for 12 months, with invoices financed 100% upfront and repaid over 6 fixed monthly instalments per drawdown.

Other options include business loans and micro loans from S$10,000 to S$150,000.

Related reading

Sources

 

Updated on 9 October 2026. First published on 31 August 2020.

Aqilah Zailan
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