Boost Your SME’s Cash Flow: The Benefits of Invoice Factoring
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Small and medium-sized enterprises (SMEs) are the backbone of Malaysia’s economy, contributing 38.2% to the country’s GDP and employing nearly 48% of the workforce.
Despite their critical role, many SMEs face persistent financial challenges that hinder their growth and potential. From delayed client payments to difficulties securing traditional financing, these obstacles can stifle business operations and limit expansion opportunities.
One innovative solution that SMEs can leverage to overcome these challenges is invoice factoring, also known as invoice financing.
This financial tool allows businesses to convert unpaid invoices into immediate cash, providing a lifeline for companies struggling with cash flow gaps. By understanding how invoice factoring works and its benefits, SMEs can unlock new opportunities for growth and stability.
Understanding the cash flow challenges of SMEs
Cash flow is the lifeblood of any SME, especially for those undertaking big projects, and maintaining a steady flow of funds is often a daunting task. Some of the most common financial challenges faced by Malaysian SMEs include:
1. Delayed payments from clients
A survey by Deloitte revealed that 32% of SMEs cited delayed payments from clients as a major challenge and the delay can severely impact their ability to fund other ongoing projects. For large contracts that need upfront material purchases or logistics costs, these expenses will need sufficient funding which may not be available if other clients have not paid up.
2. Difficulty securing traditional financing
SMEs who turn to banks for financing often face a long wait for approval, leading to delays and failure to complete projects on schedule. According to the Institute for Capital Market Research Malaysia, the rejection rate for SME financing increased to 37% in 2020, leaving many businesses without access to crucial funding.
3. Inconsistent cash flow
Seasonal fluctuations or irregular income streams can create uncertainty, making it difficult for SMEs to plan and invest in growth. A survey conducted by the Small and Medium Enterprises Association Malaysia (Samenta) found that 29% of SMEs have less than two months cash reserve to ensure continued operability.
These challenges underscore the importance of accessible funding solutions. Without adequate cash flow, even the most promising SMEs risk stagnation or failure due to the inability to take on new projects, pay their staff, or even cover the material costs of their project.
This is where invoice factoring steps in as a practical and efficient alternative.
How Invoice Factoring can help SMEs
Invoice factoring is a financial solution that allows SMEs to sell their unpaid invoices to a third party, such as CapBay, at a discount for immediate cash.
To understand how invoice factoring fits into an SME’s financial strategy, it’s essential to consider where in the project lifecycle it becomes necessary.
Typically, a project lifecycle goes through numerous stages: project tendering, project mobilisation, ongoing project execution, and project completion.
At the project completion stage, businesses often face a waiting period before they receive payment from clients, as invoices typically come with credit terms of 30, 60, or even 90 days. Invoice factoring helps businesses bridge this gap by providing an advance on their outstanding invoices, ensuring they have the funds needed to continue operations smoothly.
As a market leader in SME financing, CapBay provides bespoke Islamic financing solutions at every stage of the project lifecycle to help SMEs navigate these challenges.
For instance, SMEs may require a letter of support to enhance their track record during project tendering or bank guarantees to secure project financing. During project mobilisation and execution, solutions like term loans, revolving credit purchases, and letters of credit help maintain financial stability. Finally, at the project completion stage, invoice factoring enables businesses to unlock cash flow before invoices are settled.
Whatever stage your business is at, CapBay can find a solution that’s tailored to your needs. Find out more by reaching out to them here.
Key benefits of CapBay’s invoice factoring
Bridging cash flow gaps for SMEs is the key focus of CapBay’s invoice factoring as it empowers them to focus on their core operations without the stress of unpaid invoices.
They achieve this by focusing on several key benefits:
- Quick access to cash: Convert unpaid invoices into cash within 48 hours.
- No collateral required: Unlike traditional loans, no assets are needed.
- Flexible & customisable: Tailored financing solutions for each SME’s needs.
- Simple application process: Minimal paperwork and a user-friendly experience.
CapBay is also fully licensed by the Securities Commission Malaysia and offers Shariah-compliant financing solutions, reinforcing its credibility as a trusted financing partner.
To further illustrate the benefits of CapBay’s invoice factoring, consider an SME struggling with delayed payments from clients.
| With Invoice Factoring | Without Invoice Factoring |
|---|---|
| Upon project completion: - receives an advance in funding by utilising customer invoices - have funds to ensure continued smooth operations - able to seize new business opportunities | Upon project completion: - may face cash shortages while waiting for customers to pay - difficulty in paying own suppliers or cover operational expenses - unable to pursue new business opportunities |
Properly utilised, CapBay’s invoice factoring helps SMEs avoid cash flow issues, enabling growth and stability by allowing them to pursue new projects without operational bottlenecks.
What is CapBay’s Invoice Factoring and how does it work?
CapBay’s invoice factoring is a streamlined and hassle-free solution designed to address the cash flow challenges of SMEs and is utilised when a company transitions towards the final/completion phase of a project lifecycle.
With CapBay, in particular, there are certain steps and processes that a business needs to go through to receive its financing. But here’s a quick step-by-step overview of how it works:
Step 1: An SME engages with a corporate buyer/client to provide goods and services (i.e. provide raw materials, construction, etc.)
Step 2: Once work is completed, the SME issues an invoice to the client.
Step 3: The SME submits a financing request to CapBay via the Platform with a copy of the invoice and relevant documents.
Step 4: CapBay conducts verification from the corporate buyer/awarder. Upon approval, CapBay advances up to 80% of the invoice amount and credits to the SME’s account.
Step 5: The SME receives financing from CapBay and uses it for their suppliers/opex payment for particular contracts, while CapBay collects the payment from the Corporate buyer/awarder upon maturity date.
Step 6: Upon receiving payment from the Corporate Buyer/awarder, Capbay will release the remaining balance after deducting the interest fee from the SME.
This entire process helps streamline operations by ensuring constant working capital to finance any projects that a business is undertaking.
Key Financing Terms
CapBay’s invoice factoring provides businesses with flexible and competitive financing terms:
- Credit Limit: Depends on financing structure
- Financing Margin: Up to 80%
- Financing Tenure: Up to 120 days
- Processing Fee: 2.5% of the approved facility limit (one-off)
- Origination Fee: 1.5% of the financing amount per drawdown
- Interest Fee: 1% per month on the financing amount
CapBay’s financing solution empowers Malaysian SMEs
Invoice factoring is an essential tool for SMEs to address cash flow issues and support sustainable growth by turning unpaid invoices into immediate cash.
From invoice factoring to Shariah-compliant financing products, CapBay offers innovative and flexible solutions for Malaysian SMEs with a quick approval process and tailored offerings to help SMEs unlock their potential in a competitive market.
Connect with CapBay today to explore financing options that are best suited to your needs.
