UAE is one of the most progressive economies in the world that never shied off of adopting prevailing or emerging financial and technological trends, the same goes for invoice financing in UAE. Being the trade hub of the region, the UAE attracts all kinds of businesses. This includes businesses of all sizes. Small and Medium Enterprises constitute a significant number of these businesses. SME sector is a major contributor in the UAE economy. According to a report by Ministry of Economy, UAE, SMEs make up for 94% of the total businesses operating in the Emirates. The SME sector provides 86% of the total private sector jobs in the UAE. Referring to a report, the number of SMEs in the UAE was 557,000 at the end of the year 2022.
The UAE has a well-developed financial sector, and various banks and financial institutions offer various financing options to these businesses. Invoice financing is one of these services. Invoice financing is available in the United Arab Emirates (UAE), and it’s becoming a popular option for businesses looking to improve their cash flow and manage their working capital.
Invoice financing, also known as invoice factoring (a little different mechanism) or accounts receivable financing, is a financial arrangement where a business gets its outstanding invoices financed from a third-party financial institution, often referred to as a financing company. Invoice financing allows the business to access funds that are tied up in unpaid invoices before they are due, providing a quick injection of cash to meet immediate financial needs. Once the payment against the invoice is received from the buyer, it is paid back to the financing company along with the markup or service charges. In case of factoring, the responsibility of collecting payments from the customers lies with the financing/factoring company.
Here are some key points about invoice financing in the UAE:
Benefits of Invoice Financing:
Invoice financing offers several benefits, including:
Here is how traditional invoice financing works:
A company in the UAE may require cash flow to cover operational expenses, invest in growth, or meet other financial obligations. Instead of waiting for customers to pay their invoices, the business seeks invoice financing to get immediate funds.
The business selects an invoice financing provider, which could be a bank, financial institution, or specialized invoice financing company. In the UAE, there are several banks and financial institutions offering invoice financing services.
The business submits an application to the financing provider, including details of the invoices it wants to finance. The financing provider conducts due diligence on both the business and the invoices to assess their creditworthiness and legitimacy.
The financing provider verifies the authenticity of the invoices, ensuring they are valid and not disputed by customers.
Once the due diligence is complete, the financing provider offers a financing agreement that outlines the terms and conditions, including the discount rate (the percentage of the invoice amount the business will receive upfront) and any fees.
After agreeing to the terms, the financing provider typically advances a percentage of the invoice amount, often around 80-90%, to the business. This provides the business with immediate cash flow.
In invoice financing, the collection remains with the seller. He needs to collect the payment and pay it back to the financing institution. This amount typically includes the agreed markup and or service charges of the financing institution.
In case of invoice factoring, the financing provider takes responsibility for collecting payment from the customers directly. Once the customers pay the invoices, the financing provider deducts its fees and the initial advance, and the remaining amount is paid to the business.
InvoiceMate Tech is a DIFC incorporated fintech company that enables invoice financing services through its innovative blockchain and AI based working capital financing solution. InvoiceMate is the world’s first blockchain-powered working capital financing enabler that replaces the conventional due diligence services. InvoiceMate also provides embedded invoice financing services for banks and financing institutions.
If you’re a UAE based business, looking for working capital financing