Everything You Need to Know About Invoice Financing in Malaysia
Reports and experiences have shown a large increase in invoice financing in Malaysia. More and more companies have been recognizing the benefits of invoice financing. Thus, a lot of P2P financing platforms have extended their services to the same.
What is Invoice Financing?
Invoice financing is a way for companies to borrow money, with respect to the money due to its customers. It allows businesses to use unpaid invoices as a collateral to get short-term loans.
For a better understanding, say that you sell a product to your customer. Now, the customer tells you that they will only be able to pay you after some months.
Invoice financing is when you take the funds that the customer owes you from a third party, and pay the third party back when the customer gives you the money. In some cases, you can connect the debtor (customer) to the loaner.
Remember, invoice financing in Malaysia is strictly B2B. Meaning that you will get this financing only if your customer is another business.
Who Offers Invoice Financing?
Registered third parties, including banks, financial houses, and Malaysia accounting services may offer invoice financing.
Why is Invoice Financing in Malaysia Growing?
Well, there are many benefits of invoice financing. We list some of them:
Better Cash Flow
Companies need money to operate. They need to invest in capital, pay their employees, do promotion, and run other processes that require finances. With invoice financing, firms can easily cover the expenses and make use of new opportunities as soon as they are available. They no longer need to wait for customers to pay them.
A Better Customer Service
Customer service is another important aspect where invoice financing helps. In some cases, there may also be ‘trends’ or ‘standards’ in an industry, where customers are used to being given specific terms to pay their amounts.
Waiting for a lot of time to receive payments may affect a small business’ growth. This basically means without invoice financing, you may have to compel your customers to pay fast, which may give a negative message to them.
On the other hand, if you go for financing, you will not have to call your customers frequently. As long as you are sure they will pay, you can mind your own business, which is going to make everyone happy.
It is Easy to Set Up the Financing
Invoice financing isn’t connected to a lot of risks, so fund providers aren’t that picky about their clients. Most likely, there wouldn’t be a lot of requirements. If you are a genuine business and don’t have any ill-intents, you should get the financing without any troubles. Having good records in the past is going to help, of course.
Furthermore, setting up financing doesn’t take a lot of time. After setting up the financing, and getting an invoice, most of the money is released within 24 hours. In other words, invoice financing brings you short-term, low risk, and very fast funds.
Like what’s said above, you can start receiving funds as soon as you set up your accounting. Adding on to that, there isn’t a complicated process for securing the funds.
You don’t need a lot of assets. In most cases, the only collateral you’ll need is the invoice itself. This makes invoice financing in Malaysia an excellent choice for growing SMEs that don’t own a lot of things but still are finding a good number of customers.
How Does Invoice Financing Work: How is It Structured?
There are two structures: invoice factoring and invoice discounting.
The lender buys the invoice from the business and pays around 85% or more of the money. Then, the customer has to pay the lender, who in turn, will send the remaining money to the business, cutting the service charge.
Invoice discounting is similar to factoring. This time though, the customer pays the business. Invoice discounting is preferable over the factoring because it doesn’t let the customer know about any financing arrangements which may create a negative impact.
Invoice financing is a way for businesses to get money fast from their sales for better cash flow. It benefits three parties- the business, which gets money fast, customers who get more time to deposit the money, and for the lender who will get fees for their service.
You can contact 3E Accounting Malaysia if you have any questions regarding this article. Also, contact us for accounting services in the country.