Invoice financing is one of the popular business finance product to fuel company’s cash flow to support expansion and growth. It is also known as accounts receivable financing, invoice discounting, factoring and the latest invoice trading. There is a slight variation in each type of invoice financing.
With the rise of fintech, invoice trading platform has emerged to further enhance the traditional invoice financing process to be simpler and more flexible for businesses – Invoice Trading. Businesses are able to free up cash flow by selling outstanding invoice(s) to a network of investor via an online platform.
What is Invoice Trading
Invoice trading is the process in which SMEs (sellers) sell their outstanding invoices online, as a way to gain quick access to cash / working capital that would otherwise be tied up in accounts receivable. SMEs can sell invoices individually or in bundles to investors (buyers) via an online platform. Once the invoice is settled, funds are disbursed back to investors and any remainder (if any) to the SMEs. Transactions are real time and transparent to all parties.
What are Advantages of Invoice Trading / Invoice Financing
The main advantages of invoice discounting or commonly referred to as invoice trading on the platform are flexibility, speed and quality customer care. You can sell the invoices that you want anytime and this allows you to fine-tune your control over your cash flow. Funds can be drawdown within 24 hours with just a few clicks of a button
Unlike traditional invoice discounting, there is no obligation to discount your entire debtor ledger, no lengthy lock-in periods and no surprise fees. Alternative financing platforms excel in improving efficiencies and reducing costs, enhancing security and making processes much simpler, all resulting in better customer experience.
The SMEs register with an Invoice financing platform. Unlike the traditional banks that require long operating history and assets security, these modern alternative financing platforms do not require assets as security and require only a short operating history of as little as 6 months. It is worth mentioning that the quality and credit worthiness of the debtor carries a more important weightage than the SME itself. The registration process is swift as all it requires days when compared to banks that could take months.
Once you are registered you can post the invoice that you want to trade onto the platform. The platform will perform verification checks on the invoice and once approved it will be released into the platform for its online investors who will bid to buy a portion or even the whole invoice.
When the invoice is sold or bidding is closed, the platform will transfer the proceeds within 24 hours to the Seller (SME).
The invoice is finally settled when the end debtor pays their invoice into the platform’s bank account. The platform will then refund the investors their capital plus their returns and remits the balance of funds to the SME, less their fees.
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