Streamlining invoice financing with automated payments

Achieving business scalability through the use of API payment integration, simplifying and automating processes within modern payment systems for greater efficiency and growth.

Over 57% of SMEs experience cash flow issues caused by a variety of factors from late payments and lengthy payment terms to lack of cash management. Invoice discounting is an industry that enables businesses of all sizes to access immediate working capital.

In the UK and Ireland, over 36,500 businesses leverage forms of asset-based lending with studies showing that these local markets account for over 16% of Europe’s total volume. Not only this, but the market is due to grow at a Compound Annual Growth Rate (CAGR) of 12.6%.

Managing thousands of customers, invoice discounting firms face unique challenges to overcome. Besides the obvious credit risks, firms have to navigate technology and innovation in order to compete for market share and scale their customer base in line with the expected industry CAGR. Through API payment integration and other forms of integrated payments, invoice financing businesses can build a scalable operation without needing to expand the team or delaying merchant funding.

Understanding invoice financing

Businesses across the world often issue invoices and collect payments through invoice-based billing methods. The invoice will include a payment term, which specifies the number of days within which the payment is due. Although a 30-day term is most common, this period can vary depending on the service provided.

With a 30-day term, the seller business may not receive payment from the buyer until up to 30 days after the service or product has been delivered. Invoice financing allows businesses to sell their invoices and advance these payments. Providers of invoice financing services can pay up to 95% of the invoice value within 48 hours. The final amount, after deducting fees, is paid once the invoice is settled.

By advancing invoice payments, businesses can access capital and immediate cash flow that was previously unavailable in order to pay suppliers and operating costs therefore allowing the business to deliver the necessary goods and services. This method is typically faster than traditional bank financing and does not incur debt or require giving away equity to secure cash flow.

Limitations in traditional invoice financing

One key limitation of traditional invoice financing is the reliance on manual processes when there’s no API payment integration in place. The extent of these processes can vary significantly depending on the technology each firm has implemented. Some of these processes may include:

• Review of application, including documents provided;
• Approving or declining the financing decision;
• Setting up a new account with unique account details;
• Processing the initial payout;
• Monitoring accounts to confirm invoice is paid;
• Processing the final payout;
• Processing the payment of fees to external accounts.

Delays and errors

The very essence of invoice financing is to provide access to capital in advance of payment terms. A key offering within the market is the speed of finance approval times, and where delays occur, businesses are often the ones impacted. There are multiple causes for payment processing delays, most of which stem from manual banking processes and can be mitigated through API payment integration.

• Submitting and approving transfers – Once financing is approved, the payment must be submitted to the end customer. With traditional banks and providers, this process is often manual. When accounts teams are overrun with hundreds or thousands of payments each month, it can lead to delays in funding.
• Lack of data and access to real-time information – In a typical arrangement, the final payment amount is only due upon settlement of the invoice. However, with manual systems, there is no way to be notified when lodgements are received. Where no data and real-time information is available, businesses are often required to log in multiple times a day to confirm if payments have been received.
• Reconciliation and segregation – As part of the invoice financing structure, businesses must create individual accounts for each of their customers. With traditional institutions, this can take days, or in some cases, even weeks. This delay could mean new customers may not be able to access funding for weeks after signing up.

Cost implications of manual invoice financing processes for businesses

Throughout the customer lifecycle, several costs are incurred. These costs can primarily be attributed to three main areas: operational costs, transactional costs, and service costs.

Where manual processes are prevalent, operational costs can be significant. In cases where accounts teams spend over 1.5 hours a day processing payments, API payment integration and other automated methods can reduce this to less than 15 minutes, saving over 6 hours of staff time each week. Implementing an integrated payment solution could save thousands each month by reducing low-value tasks performed by staff, allowing them to focus on higher-value work and support strategically important initiatives.

Transactional costs are often unavoidable and are seen as a cost of delivering the service. Despite this, there are ways to reduce and negotiate rates to ensure the most competitive offering is in place. It is important to take all fees into consideration – where some providers may charge a setup fee, monthly fees or API fees, the transaction fees offered may seem cheaper at face value.

The role of API payment integration and automated payments in invoice financing

Automated payments significantly enhance the efficiency and speed of funding, streamlining the entire invoice financing process.

Submitting and approving transfers

Using an integrated and automated payment provider, the finance payment can be automatically included in a payment batch and processed at regular intervals without manual intervention, allowing the system to operate at maximum efficiency.

Reconciliation and segregation

Through API payment integration, individual accounts for each customer with unique account details can be generated instantly and accessed immediately. This significantly reduces the time required for onboarding new customers.

Access to real-time information

Within an automated solution, data is readily available through direct integration. Integrated payment solutions allow invoice financing providers to access data within their own backend system or application with no requirement to log in to an external source.

With real-time updates to data and no manual input required, errors are reduced dramatically and accuracy is increased. Beyond real-time access to data, webhooks are an invaluable data source. Webhooks at their core are event-driven notifications tied to specific actions. Systems can get notified of actions such as received lodgements, which in turn can trigger an event-driven action such as automatically submitting a bank transfer.

Benefits of API payment integration

More agile, tech-savvy businesses may find it easier to keep pace with rapid technological advancements in the fintech space, offering growth opportunities for established firms and setting an example they can learn from to enhance their customer service.

As firms grow and serve more clients, managing a larger volume of invoices can be streamlined with the right systems and processes, enabling efficient handling of increased complexity.

The speed of funding is directly related to the speed of data. With better and more available data, funding decisions and processes can be completed with increased efficiency, allowing invoice discounting firms to provide their customers with a better offering and faster funding, gaining a competitive edge over other providers.

Industry trends and future outlook

There are two key payment-related trends frequently discussed in the alternative financing industry. The foremost is the widespread adoption of a real-time payment network across Europe. With the recent mandate of SEPA Instant, the EU is catching up with the UK in terms of real-time payments. As instant payments become more common, customers will expect to receive funds instantly, leaving firms little choice but to leverage payment automation and API payment integration.

Practical tips for implementation

1. Single onboarding

To onboard with a regulated institution, you will be required to upload a variety of KYC and KYB documents. With digital providers, this is all online with no requirement to visit a branch. Once onboarded, you will get access to a vast range of features, that can be leveraged all in real-time. Creation of new subaccounts and payments are instant and don’t require further onboarding.

2. API payment integration

Once onboarded, to complete a fully integrated and automated payment process, you will have to connect your backend system to the financial provider’s API. There are often a number of endpoints, webhooks and calls that can be leveraged to get the functionality and data suitable for your business requirements. With the majority of providers, support, guidance and implementation documents are available to assist your developers during this process.

3. Testing

As part of the API payment integration process, testing is essential to ensure a resilient and reliable product. Through a mix of testing environments, penny transactions and phased rollout, any teething issues from the integration can be solved with minimal impact.

4. Transacting

Fully roll out an automated and integrated payment product. Save operational hours, reduce risk, and scale your business effectively.

Best Practices for implementing and managing automated payment systems

Use a trusted provider. The financial institution you decide to partner with should be both trusted and reliable. Through a combination of integration resources and large volumes of funds flowing through the account, your provider should:

• Be regulated to provide the necessary services,
• Keep your money safe through safeguarding or the deposit guarantee scheme,
• Build in-house reliable technology that doesn’t depend on third parties,
• Be trusted in the industry by a range of existing customers.

Beyond the provider, it is recommended to have internal procedures in place to manage security and risk. This can be achieved through a combination of tools such as multi-user authentication and controlling access by setting appropriate user roles.

Boost your efficiency

Streamlining invoice financing through API payment integration and automation offers significant advantages for businesses in the invoice financing space. By automating manual processes, these firms can enhance efficiency, reduce errors, and speed up payment processing, which directly improves customer experience and satisfaction.

Automated systems provide real-time data, enable scalability, and minimise operational costs, allowing them to better serve their clients and remain competitive in a rapidly evolving financial landscape. As the adoption of instant payment networks grows, businesses must integrate API-driven solutions to meet rising customer expectations and ensure continued success in the invoice financing market.

Interested in how we’ve been helping invoice discounting clients streamline their payment processes? Check out our case study to learn more about how we enabled Accelerated Payments to enhance invoice financing with Fire’s automated payment processing.

Gain access to an integrated solution that provides payment services across the UK and EU from a single, dual-regulated provider. Reach out to us at sales@fire.com or feel free to contact a member of the Fire sales team here to learn more.