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Invoice Financing: Growth Opportunities for SMEs

Invoice Financing Growth Opportunities for SMEs

Invoice financing is a type of short-term working capital financing. This type of financing can especially benefit small to medium businesses. Let’s take a look at how invoice financing can help SMEs grow.

SME stands for Small and Medium-sized Enterprises. SMEs usually don’t have easy access to formal financing for many reasons. The most common reason for this is lack of collateral. Unlike bigger businesses, they don’t have enough tangible assets to obtain financing from formal lending channels. Usually, small businesses don’t have much in the shape of buildings, plant and machinery, inventory, and capital investments. As formal financing channels need sizeable collateral against their financing, SMEs are mostly deprived of formal financing.

Ideally, a small business needs financing that would be:

  • Of a shorter term
  • Won’t involve tangible assets as collateral

Invoice financing has both of the above characteristics in its essence.


Invoice Financing Basics

Invoice financing is a type of working capital financing that can be obtained against receivable invoices (accounts receivable). The receivable invoice acts here as collateral. The borrower submits its receivable invoices to a bank/invoice financing company, upon approval, the lender pays the cash upfront to the borrower (Usually up to 90 percent of receivables). Once the invoice amount is due, the borrower collects the amount and pays the due amount including any service charges or markup to the lender. Usually invoice financing is obtained for up to 90 days but it can be more or less than that according to the term.


Benefits of Invoice Financing for SMEs

Invoice financing can be beneficial for SMEs in many ways. Here are some of the key advantages:

  • Working Capital Management
  • Better Cash Flow
  • Flexibility and Scalability
  • Speedier Access
  • Enabling Growth

The availability of reasonable working capital allows SMEs to avail different business opportunities and increase their revenue leading to growth. Let’s explore further how invoice financing can help SMEs’ growth.

Growth Opportunities With Invoice Financing

Invoice financing offers several growth opportunities for Small and Medium-sized Enterprises (SMEs). Here are some ways SMEs can leverage invoice financing to fuel their expansion:

Grab Time Bound Opportunities:

SMEs may take advantage of time-sensitive business opportunities, such as bulk purchase discounts, equipment improvements, or breaking into new markets, thanks to invoice finance, which gives them instant access to cash.

Expand Offerings:

SMEs can expand their product or service offers and possibly draw in more clients and revenue streams by diversifying their products with the help of invoice finance, a dependable source of operating capital.

Enter New Markets:

The excess cash flow can be utilized for market research and expansion, including local and worldwide market entry, industry niche targeting, and regional and regional expansion.

Spend on Marketing:

To strengthen their position in the market, draw in new clients, and raise brand awareness, SMEs can invest money in marketing and advertising efforts.

Upgrade Technology and Infrastructure:

Modern equipment and technology investments may greatly boost SMEs’ competitiveness, productivity, and efficiency while enabling them to provide higher-quality goods and services. Upgrading the digital or physical infrastructure leads to growth.

Hiring & Training:

Increasing the number of skilled workers on staff or offering ongoing training to existing staff can improve output, client satisfaction, and overall business performance.

Increase Discounts:

SMEs that have better cash flow are better able to bargain with suppliers for early payment discounts, which could result in lower costs for inventory or raw materials.

Improve Inventory Management:

Maintain optimal levels of inventory to meet increased demand or seasonal fluctuations, ensuring products are readily available for customers.

Diversify Revenue Streams:

Utilize the money to explore potential revenue streams outside of the company’s primary industry or verticals.

In short, a reasonable cash-in hand brings countless opportunities for small to medium businesses like never before.

Challenges of Invoice Financing

Invoice financing can solve the cash flow issues of a business effectively. But it’s not as simple as we discussed earlier, invoice financing is collateral-less financing. Receivable invoices act as collateral. For this purpose, the lender needs to establish the integrity of the invoices presented before him. The financing institution requires due diligence for these invoices. Conventional due diligence like KYC can be slow, tedious, and costly as the invoice is an internal document of a business having no legal backing. It can be fake, tampered with, or duplicate (one invoice to be financed multiple times with different lenders). For short-term financing, investing this much time and resources in due diligence becomes inviable. That’s why banks and financing institutions usually hesitate to offer invoice financing.

The Solution

To make invoice financing viable, we need a system to authenticate the integrity of invoices. In other words, we need a quick and cost-effective due diligence service that can verify the integrity of invoices in the shortest possible time. A system that can verify the buyer, the seller, and the invoice to be genuine. This is where InvoiceMate comes into the equation.

InvoiceMate is the world’s first blockchain and AI-powered invoice financing enabler that acts as a bridge between the borrower (SME in this case) and the lender (Financing institution). With blockchain and AI technology, InvoiceMate provides financing institutions with a reliable and transparent system to assess the risk associated with loan applications from SMEs. With this reliable & automated access to verified and accurate invoice data, financing institutions can make more informed decisions and better evaluate the creditworthiness of SMEs & their credentials for loan applications. InvoiceMate employs artificial intelligence (AI) as a verifier for all invoices input into its management system. AI algorithms analyze the data, ensuring accuracy and authenticity while detecting any potentially fraudulent activities. By automating the verification process, InvoiceMate significantly reduces the effort required by banks to manually check and validate invoices, thus saving time and resources and making invoice financing viable.

Summing up, invoice financing provides SMEs with new opportunities to grow their business to its full potential. InvoiceMate helps SMEs and financing institutions by easing the invoice financing challenges.

Learn more at: invoicemate.tech