If customers pay late and you’re weighing invoice financing vs business loan, the gap comes down to purpose. Invoice financing advances cash against unpaid invoices; a term loan is a lump sum repaid in instalments.
This explainer is part of the small business finance section.
| Item | Value |
|---|---|
| Invoice financing advance (OCBC example) | Up to 70% to 90% of the invoice’s value |
| Invoice financing handling fee (OCBC example) | 0.25% of the invoice amount, plus interest |
| Typical invoice financing tenure (Clear) | 30-90 days |
| Example term loan repayment period (OCBC) | Up to 30 years |
| Example term loan effective interest rate (OCBC) | 3-7% per annum |
The figures come from OCBC Business Banking’s article of 25 May 2021 and Clear’s page, updated Nov 14th, 2024. Terms vary by provider and country and can change, so check the source before you rely on them.
How each product works
Invoice financing lets a business borrow against money its customers already owe. OCBC Business Banking’s 25 May 2021 article says it releases funds locked up in unpaid invoices, with an advance of up to 70% to 90% of the invoice’s value repaid at the maturity date. Funding Societies’ June 5, 2017 blog puts the advance at around 80% of unpaid invoices, depending on the institution.
A term loan is a fixed amount from a financial institution with a specified repayment schedule and either a fixed or a floating interest rate, according to Funding Societies. The same post says term loans are usually repaid monthly from cash flow, while invoice finance is repaid on the invoice due date.
Providers describe the structure differently. Spark Finance, a UK credit broker, calls invoice finance a revolving facility secured against the sales ledger, so the amount available moves with the ledger. OCBC, by contrast, says invoice financing should not be viewed as a credit line but as a cash advance on revenue that has already been secured.
Clear’s page, updated Nov 14th, 2024, lists these contrasts:
- Repayment: invoice financing is paid off in full at invoice maturity, while a term loan is repaid in fixed instalments over a set period.
- Tenure: invoice financing usually ranges from 30-90 days, while term loan tenure is longer.
- Collateral: outstanding sale invoices for invoice financing, versus assets such as land or buildings for term loans.
- Balance sheet: Clear says invoice financing has no balance sheet impact, while a term loan is reported as borrowings.
Collateral and accounting treatment vary by provider and country, so read these as general descriptions rather than fixed rules. You can check the details on Clear’s page.
Invoice financing vs business loan by purpose
The sources agree on the broad split. Invoice financing targets the gap between paying expenses and getting paid, while term loans suit larger, longer-term spending.
- OCBC says invoice financing is commonly used in wholesale trade, construction and manufacturing, and can bridge the cash flow gap while clients pay late.
- Spark Finance describes invoice finance as suited to customers who pay on 30 to 90-day terms, and a business loan as suited to one-off investments such as equipment, premises or an acquisition.
- Funding Societies says term loans are generally used to buy fixed assets such as production equipment.
OCBC adds that some large corporations have asked suppliers for longer payment terms of 90 or even 120 days. For a smaller supplier, that stretches the wait between delivering work and receiving payment.
OCBC also notes that business-changing expenses may need more time than invoice financing allows. For those, it points to term loans, including government-assisted loans aimed at firms without the collateral standard business loans can require. The OCBC article was published in May 2021, so check what schemes exist now.
What the costs can look like
OCBC lists an upfront handling fee of 0.25% of the invoice amount for invoice financing, plus interest on the financing amount. It says interest is paid only on the amount used, and that total cost varies with how many invoices are financed and how reliable the clients are, per its 25 May 2021 article.
For a term loan, OCBC says the effective interest rate is calculated clearly at the start. Its example, a Commercial Property Loan, has an EIR of 3-7% per annum and can be repaid over up to 30 years, as of that May 2021 article.
Riviera Finance’s August 4, 2026 post, written by a factoring company, gives an illustrative comparison for a $100,000 invoice due in 30 days. An 8% APR credit line works out to roughly $670 in interest over those 30 days, while its example factoring fee of 2.5% per 30 days comes to $2,500. Riviera itself says that on a strict APR basis, factoring is more expensive.
Those numbers are labelled as examples only, so treat them as illustration. Spark Finance says the answer depends on usage: invoice finance can be cheaper for consistent invoice volumes and high advance utilisation, while a loan is usually more cost-effective for a one-off capital purchase.
Eligibility, collateral and speed
Spark Finance says invoice finance eligibility is largely based on the quality of the sales ledger and the creditworthiness of your customers, rather than your own balance sheet strength. Riviera Finance says the same of factoring, which it describes as evaluated mainly on clients’ creditworthiness rather than business history.
Term loans are described as more demanding. OCBC says they carry requirements on shareholding, annual revenue and how the funds are used, and Riviera says bank loans often require financial statements, forecasts and collateral.
On timing, Clear says invoice financing can be processed in a couple of days on the basis of submitted invoices, while a term loan involves a lengthy processing time. Actual timing depends on the provider, the country and the paperwork involved.
Can a business use both?
Yes, according to Spark Finance: invoice finance funds the working capital cycle, while a business loan funds capital investment. Riviera Finance likewise says many businesses combine the two, using loans for long-term investments and factoring for day-to-day cash flow.
Both products are part of a wider set of small business financing options covered elsewhere on this site. Some businesses also look at a business line of credit, which Riviera Finance’s August 4, 2026 post says has approval requirements and balance sheet impact similar to traditional bank financing.
Frequently asked questions
Is invoice financing a loan?
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It depends on the provider. Funding Societies calls invoice finance a loan product based on amounts due from customers, while Riviera Finance describes factoring as using unpaid invoices instead of borrowing money. Check how a given contract treats repayment and ownership of the invoices.
How long does invoice financing usually last?
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Clear’s page, updated Nov 14th, 2024, says the tenure is short and usually ranges from 30-90 days, with repayment due on the invoice due date.
Which is cheaper?
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Neither is always cheaper. Spark Finance says it depends on usage and the products available, and Riviera Finance’s example shows a higher cost for factoring on a strict APR basis.
Do the rules differ by country?
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Yes, and so do terms by provider. The sources used here come from lenders and brokers in Singapore, the UK and India, so details such as fees, collateral and accounting treatment may not carry over to your location.
This page is for general information and education only and is not financial, investment, tax or legal advice.
