A Guide to Invoice Financing in Malaysia 2022

Md. Meher Ullah • October 14, 2022 • 9 mins read

There are about 40% GDP contributions from SMEs in Malaysia. Despite this success, many SMEs in Malaysia are having trouble with their cash flow and are now researching invoice finance as a different sort of loan facility.

Before we get started, let’s have some basic understanding of what invoice financing is and how it could potentially help your business in Malaysia.

  1. Types of Invoice Financing
  2. How does Invoice Financing and Invoice Factoring work?
  3. More about Invoice Financing
  4. Advantages of Invoice Financing
  5. Advantages of Invoice Financing

Types of Invoice Financing

Invoice Financing, otherwise known as Sales Invoice Financing can be a difficult topic for people with no financing experience to absorb. In Malaysia, this financing service is separated into three categories, including Invoice Financing, Invoice Factoring, and Invoice Discounting. Oftentimes, people feel more comfortable with the first two approaches and vice versa, alienated towards the final approach to financing.

How does Invoice Financing and Invoice Factoring work?

Invoice Financing is probably the least complex asset-based financing approach. It is a service offered by a financier that enables you to utilize your invoices as proof of your ability to repay a lender for an advance. Under normal circumstances and once your client paid for the invoice, you are able to get up to 80% of your invoice upfront, and you will be able to pay the financier back with interest and fees during an agreed payment term.

On the other hand, Invoice factoring is somewhat similar to invoice financing in the sense that you will be able to obtain up to 80% of your invoice upfront. However, you are essentially selling the financier your invoice, and on your behalf, the financier will obtain payment in full from the client itself.

Both financing services are great for companies that do not have the luxury to wait to get funds, which is a benefit to their cash flow management and business expansion. In this article, we aim to dive deeper into Invoice Financing.

More about Invoice Financing

So we understand how Invoice Financing works, but who is it most suited for? Despite being known for its compatibility with small and micro-sized businesses, invoice financing can be opted by anyone who needs consistent cash flow to operate and full concentration on their business expansion.

Generally speaking, Malaysian corporations that have been in business for at least two years without any serious tax issues or legal problems, and have an invoice amount payable time-frame of at least 90-days will be eligible to apply for invoice financing.

Steps to Invoice Financing

Ever wondered how Malaysian invoice financing works and what's necessary to have to apply? the following is a thorough explanation of the full procedure with iLending:

1. Invoice your client. Whenever you supply them with goods or services, issue an invoice to your clients for the labor charges of those services. You have to make sure that each invoice needs to be payable within 90-days.

2. Assign the invoice to the lender. After we assess your eligibility and conduct due diligence on you and the debtors you are invoicing, you will receive an offer of the amount we are willing to fund for you based on your paying behavior.
Obtain an advance from the lender. Depending on the agreed terms, the size of your transaction, your industry, and other risk parameters, we may offer you up to 80% of the invoice value. All transactions thereafter will be done through an account set up by us.

3. Make payment to your lender. After receiving the advance from us, you will eventually be required to pay for the goods or the labor costs for the services, per the 90-day payment clause in your invoice to your debtor. But now that the assignment is in place, the money owed to you has been transferred to the lender. In order to give your client a more smooth experience, the lender typically opts to follow the historical process for collecting from before the lender was introduced.

4. You received the Balance payment. Once we have received the full payment from your client, we will proceed to deduct all fees and charges. The remaining balance will then be transferred to your account, thus completing the agreement.

This straightforward procedure relieves the stress of constant payment delays and helps small businesses with their cash flow issues. In Malaysia, numerous reputable market players, including ours, provide invoice financing. Experience it with us if you're interested in learning more about invoice financing.

Advantages of Invoice Financing

Stabilized Cash Flow - For many SMEs in Malaysia, this is the most attainable option for them to generate and maintain their cash flow. Having quick access to funds allow businesses to not worry about waiting for the money while putting all their concentration into their business expansion or even to cover other immediate expenses.

Extended Payment Terms - Since you are allowed to make payment between 30-90 days, you can also have the potential to experience growth within that time frame, and by then, your business will be able to generate more money to cover these expenses.

Not Difficult to Apply - As stated above, as long as your business has been operating for a minimum of two years and has no serious record of tax or legal issues, you are eligible for funding.

No Collateral Needed - As the name suggests, it is not a requirement for your business to provide any security or assets as collateral, the invoice itself IS the collateral.

Credit Limit Grows With the Business - The amount of a business loan that will be accepted depends on your business's revenue and credit rating. However, the total value of the invoices is what determines how much money you can borrow against them. Despite the fact that certain financiers can only finance up to 80% of the invoice amount, you will still have access to more capital than you would with an overdraft or bank loan.

October 17, 2022 • 9 mins read
October 17, 2022 • 9 mins read