Problem:
Customers pay in 30–90 days, but suppliers want upfront payment. This creates cash gaps and slows growth.
Option 1: Invoice financing
- Factoring: Sell invoices; financier collects
- 70–90% advance
- Less admin, financier handles collections
- Discounting: Borrow against invoices; you collect
- 70–90% advance
- Keep customer relationships
- Cost: Typically 1–3% per month (varies)
Option 2: Trade credit
- Pay suppliers later (e.g., 30–60 days)
- Usually free if on time
- Dependent on relationship and your credit history
- Limits set by supplier
Quick comparison:
- Speed: Invoice finance fast after setup; trade credit depends on relationship
- Cost: Trade credit free; invoice finance has fees
- Scale: Invoice finance scales with sales; trade credit capped by supplier
- Control: Invoice finance lets you choose invoices; supplier sets trade terms
When to use invoice financing:
- Fast growth with long payment terms
- Large, creditworthy customers
- Need cash for inventory and marketing now
- Seasonal peaks
- Want to offer longer terms to win business
When trade credit is better:
- Strong supplier relationships
- Stable volumes and predictable turns
- Preference for simplicity and zero cost
- Good payment history
Smart hybrid:
- Maximize trade credit first
- Use invoice finance for overflow or slow-paying customers
- Combine with supply chain finance where available
UAE notes:
- Handle 5% VAT correctly in agreements
- Free zone vs mainland invoicing differences
- Islamic options (Tawarruq, Murabaha) available
Decision steps:
- Map customer payment patterns (who pays in 30 vs 60–90 days)
- Calculate cash gap (supplier pay dates vs actual receipt)
- Get quotes from suppliers and invoice financiers
- Pick the option with lowest cost and enough flexibility
Success tips:
- Keep clean records
- Pay suppliers on time to protect terms
- Diversify funding sources
- Track true costs, including discounts and fees
- Set up facilities before urgent need
The best mix starts with supplier credit and layers invoice finance to unlock growth and stabilize cash flow.