Invoice Financing
We help businesses improve cash flow by unlocking the value of their receivables through invoice discounting, without waiting for customer payments.
We’d be glad to learn more about your company and discuss the best ways we can help.
Invoice Financing (aka invoice discounting) is a loan product that companies can use to obtain short-term funding from banks by pledging customer invoices.
Invoice financing is particularly useful for businesses in industries such as wholesale, distribution, manufacturing, and professional services—especially those with clients who operate on credit terms. Companies in these sectors do not have fixed assets such as plant, property or equipment to provide as security for the loan. But if they have good paying customers doing repeat business then invoice financing can be a reliable source of funding the business growth.
Banks typically advance 70% to 90% of the invoice value upfront.
To obtain invoice financing, the company (aka borrower) must have delivered the goods (or service) to its customers and is awaiting the invoice payment.
Banks prefer to finance invoices from top tier names or customers who have existing relationships with the bank. Banks scrutinize customer contracts, account receivable records and payment history to determine whether to fund or not, and fund under what terms. It is therefore important for the borrower to have good systems, record keeping and collection practices and proper documentation of policies and procedures.
Bank requires the borrower to assign the invoices and open a bank account where the customer payments are to be received. It allows the bank to establish the legal ownership of the receivables and control of the incoming payments. The invoice assignment is done contractually. The appropriate language is written in the lender’s loan agreement. The bank usually requires the borrower to ask the customers to pay to that account by putting the bank account details in the invoices.
Bank may require additional risk mitigation measures such as personal guarantee from the owners.
Fast access to cash – Businesses receive funding within days, avoiding long payment cycles.
No collateral required – Since invoices serve as collateral, there’s no need to pledge physical assets.
Scalable financing – The funding amount grows with sales volume, making it ideal for expanding businesses.
Flexible terms – Some lenders offer confidential financing, allowing businesses to maintain normal client relationships.
Limited eligibility – Only invoices from financially stable customers may qualify. Invoices from customers who do not pay on time are likely to be excluded.
Finance rate/discount rate – there is no uniform market standard for pricing. Each bank has its own way of structuring and pricing the product.
Change of process – Some banks may insist on notifying customers and change the payment collection to pass through a new bank account opened with the bank.
Invoice financing is a well established and widely used loan product. While there is limited market standardization in the Philippines, almost all local banks offer this product. The process of obtaining approval is effort intensive. But once the approval is in place, the utilization is relatively straight forward. Bayfront has relationships with all the banks that offer this product, and has assisted many companies to successfully get the borrowing applications approved.
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