Kapital Connection | Invoice Financing

Invoice Financing

Waiting for the payment of invoices can have a huge burden on any business, particularly so for SMEs. Invoice Financing can solve the problem by getting early payment on invoices.

Lenders may offer payment of up to 80% of your unpaid invoices. You can select individual invoices that you want to finance or get financing for your full account receivables.

You can receive money within days, meaning you don’t have to wait weeks or even months for outstanding payments, helping any immediate cashflow problems and giving you the opportunity to focus on what’s important – growing the business.

Amount

Up to 80% of invoice amount

Funding amount of the invoices that are due for collection

Repayment

Repayment 1-3 months

Terms depend on the invoice payment terms

Rates

Rates 1.0-3.5% of finance amount per month

The rates depend on the quality of customers and your financial profile

Advantages

Turning Account Receivables into Cash flow

Instead of waiting for weeks or months to receive payment on outstanding invoices, you can receive the money immediately which enables you to procure more goods and services to generate even more revenues, creating a virtuous business cycle.

Higher Probability of Approval

The pending invoices act as collateral, which means lenders can rely more on the quality of the invoices and the end customers than on your credit profile. As such, lenders tend to take a more lenient approach on your credit profile than in other types of loans, expediting approval process.

Disadvantages

Customer Dependency

Lenders may not be too particular about your business’s financials, but they will take your customers’ payment history into consideration before approving your application. Therefore, if your customers have a bad payment record, it could negatively impact your ability to factor your invoices.

Furthermore, lenders may require notification of the factoring to your customers and stipulate payment of the invoice to be made to the lender instead of you. Not surprisingly, some customers may decline such request for various reasons. Furthermore, customers may also be concerned about your business’s cash flow challenges and your business’s going concerns in general

Recourse Liability

There are two different kinds of invoice financing – with recourse or without recourse. With recourse, you would be liable to pay back the loans to lenders if your customers fail to pay the invoices on time. Without recourse, the lender is fully responsible for the collection of the invoices and you are not responsible for customers’ payment behaviour.