Invoice Financing (IF) is a product where the sellers (“SME” in this case) sell their future receivables or invoices that they have issued to their customers (“Debtor”) to get immediate cash. When the debtors pay these invoices, Investors who bought these future receivables would receive the full payment and earn a return.
Tenor is either 1 month, 1.5 months, 2 months or 3 months, with bullet repayments of full principal and interests.
SMEs can pay anytime within the tenor and there are no early repayment fees. Investors will receive full interests up till the date of repayment, as the Interest Rates are factored at a daily rate.
Factoring the Interest at a daily rate is to encourage prompt repayment behaviour from our SMEs, which in turn increases the short term investment opportunities for Investors.
The quicker repayment turnaround time will allow you to reinvest the funds into other investments to generate greater returns.
Our invoice financing listings comprises two types of disclosure:
Notified - where the debtor is notified that the invoice has been assigned to us for the SME to obtain financing in advance. In this case, the debtors will pay directly to our escrow account, bypassing the SME which reduces the chances of the SME using the funds for other expenses. The reduced risk means that notified invoice financing listings are often offered with lower interest rate than an invoice with non-notified disclosure.
Non-notified - where the debtor is not aware that the SME has assigned the invoice to us for financing. The debtor will continue to liaise with the SME and pay directly to the SME. Once the SME receives the payment from their buyer, they make the payment to us. In case their buyer pays them late, the SME is still liable to pay late interest and penalty fees for late repayment to investors.
It is not uncommon for SMEs to be late in their invoice repayments. In a 2016 report published by Atradius Collections, on average, 47% of the total value of domestic B2B invoices in Singapore were paid late. Additionally, B2B customers in Singapore settle overdue bills, on average, three weeks after the due date. Also, when compared to 2015, the domestic default rate in Singapore last year remained stable.
With that said, at Funding Societies, our IF has had a low default rate and repayments are healthy. Hence, this is a great investment opportunity for investors with low-risk appetite. Do set up your auto-investment preferences for IF to be auto allocated into the next IF opportunity!
The rate of return for this investment normally falls within 8%-18% p.a., but the actual rate of return will depend on the individual offerings in question. This article provides general information on the type of investment, and you are encouraged to seek independent financial and legal advice before investing.