Without access to capital, small and medium-sized enterprises (SMEs) can struggle to grow and thrive. Are you an SME looking for a business loan? You may have heard of Accounts Receivable (AR) Financing and Accounts Payable (AP) financing in Singapore, but do you know how they differ? Both are common methods of obtaining capital for your business, so it can be difficult to decide which one is better for your particular needs. In this blog, we will explore the differences between these two forms of financing, so that you can make the right decision before applying for a business loan.

Accounts Receivable Financing and Accounts Payable Financing provide businesses with a way to bridge the gap between when they incur expenses and when they receive payment from customers. While both methods can be beneficial, there are some differences between them that you should consider.

What is Accounts Receivable (AR) Financing?

Accounts Receivable Financing is a form of asset-based financing in which a business borrows money against outstanding invoices. It enables companies to unlock cash tied up in unpaid customer invoices easily and quickly, allowing them to gain access to working capital without having to wait for their customers to pay. 

So how does it work?

Accounts Receivable Financing works whereby a financier provides a business loan against the value of an invoice, meaning businesses can receive a cash advance almost immediately. This allows businesses to leverage their accounts receivable as collateral for the loan and quickly free up the cash tied up in those receivables. As a result, they get the working capital they need to keep their operations running smoothly and to invest in growth opportunities. AR Financing is a great option for businesses struggling to manage cash flow, as it helps them bridge the gap between when they need to pay their suppliers and when they receive payment from their customers.

What is Accounts Payable (AP) Financing?

Accounts Payable (AP) Financing is different from Accounts Receivable (AR) Financing as it is a type of debt financing in which a business borrows money against the invoices it has not paid to its supplier. In other words, it is a type of invoice financing that allows businesses to access working capital quickly without having to make any payment upfront on its own. 

AP Financing works by providing businesses with a cash advance against their supplier invoices. This way, businesses can use their accounts payable as a source of short-term financing, enabling them to meet their immediate financial needs and fund business growth.

With that said, what are SMEs missing out on from AP Financing?

3 key differences between Funding Societies’ AR Financing and AP Financing 

1. Quantum 

With Funding Societies, SMEs in Singapore can apply for AR Financing up to a maximum limit of S$1 million with no hidden fees or charges. This is great for businesses looking to access large amounts of capital quickly.

On the other hand, AP Financing offers smaller quantum loans up to S$500,000. This makes it suitable for SMEs who have limited cash flow but require short-term financing on upfront payments. 

2. Coverage 

Funding Societies offers AR Financing that covers up to 80% of the value of an invoice, allowing SMEs to access capital quickly without having to wait for customers to pay their bills. This form of financing is ideal for businesses that have a steady stream of customer invoices but need access to working capital in order to cover operational costs or invest in new opportunities. 

With AP Financing, your business is able to borrow against the amount you owe suppliers for goods and services purchased on credit terms. Unlike AR Financing, AP Financing provides 100% coverage of the supplier’s invoice amount, allowing SMEs greater flexibility when it comes to accessing funds. This form of financing is ideal for businesses with a high volume of supplier payments, or when no credit terms are offered by your suppliers. Making full payment upfront also puts you in a better position to negotiate for discounts from your suppliers.  

3. Eligibility criteria

To make the loan application process easier, let’s take a look at the SME eligibility criteria for each product.

AR Financing is available to: 

  • All Singapore registered businesses with at least 30% local shareholding and have been in operation for at least six months. 
  • 100% foreign-owned companies who prefer notified arrangements.

On the other hand, AP Financing from Funding Societies is available to all Singapore registered businesses, and Pte Ltd Co. or LLP Incorporated businesses with an operating history of more than 12 months are eligible to apply. However, applicants cannot be more than 30 days past due in current or previous loans or facilities with Funding Societies.

For more on how Funding Societies’ AP Financing works and how to apply, click here.

What Every SME should know about AR Financing vs. AP Financing before Applying for a Business Loan

AR Financing and AP Financing are two popular financing options for SME working capital loans. At Funding Societies, we understand that each business has different needs and requirements when it comes to financing solutions. If you need more information on which option is better for your business needs, check out our website below.

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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 Payable Financing is fulfilled by FS Capital Pte Ltd (in partnership with Enterprise Singapore), whereas 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.