Do you know more than 82% of small businesses fail due to cash flow problems?
Fortunately, now there is an ultimate solution to eliminate this #1 reason behind business failures –Invoice Financing. In fact, the global Invoice Financing market is expected to reach $4618.9 billion by 2031.
With this innovative financing option, businesses can obtain immediate cash against their outstanding invoices without waiting for their customers to pay. It is one kind of money-lending service offered by a FinTech startup, Financial Institutes, Credit unions, or alternate lenders.
There are also dedicated invoice financing companies that focus solely on this type of financing. In addition, online marketplaces and platforms can also offer invoice financing as one of their services.
So, let’s explore how to create and launch this lucrative FinTech app idea starting from understanding the concept.
What is Invoice Financing, and how does it work?
Invoice financing is a type of financing that helps businesses get immediate cash by selling their unpaid invoices to a third-party lender. Instead of waiting for their customers to pay their outstanding invoices, businesses can obtain the money they need to cover their expenses and invest in growth opportunities.
The lender pays the business a percentage of the invoice amount upfront and collects the payment from the customer when the invoice is due, minus a fee for the financing service. Let’s understand it with a simple example.
A small business is waiting for a customer to pay a $10000 invoice due in 60 days. However, the business needs cash to pay its bills and cover other expenses.
So, instead of waiting for the full payment, the business decides to sell the invoice to a finance company that agrees to pay 90% ($9000) in advance.
The finance company charges a 2% fee for every month it takes the customer to pay the invoice. The customer pays the full invoice in two months. So now, the business owes $400 to the Invoice Financing company —2% of the total invoice amount ($10000*2%=$200) for each month.
After receiving the complete amount from the customer, the Invoice Finance company will pay the remaining $600 after deducting the fee.
$10000 Invoice Amount – $9000 Paid upfront = $1000 To be paid
$1000 To be paid – $400 (2% fee) = $600 To pay the business
Basically, the Invoice Financing company pays the business $9,000 upfront, charges 2% of the total amount, and collects the full $10000 payment from the customer in 60 days.
Consequently, the business gets the cash it needs to cover its expenses, and the finance company earns a profit by charging a fee for the financing service.
How to stand out in the Invoice Financing app market from the rest?
Developing an Invoice Financing app won’t be enough. Given every financing business will want to extend its service, you will have to go the extra mile to make your service appealing.
There are many ways, but it would be undefeatable if you could come up with an unparalleled offer. Combine invoice financing and factoring (we’ll discuss the difference between both), build an omnipresent app, helping all sorts of businesses avail the finance on their invoices from anywhere, or you can pioneer a new way of invoice financing. For example, by partnering with big finance companies, offer an invoice financing service for large businesses and enterprises.
You can also offer features like automated credit checks, real-time funding, and personalized financing options based on the business’s unique needs. Leverage mobile technology to build a well-designed invoice financing app that can streamline the financing process, offering a better user experience for businesses and lenders alike.
Using automation, data analytics, and digital payment systems, you can offer an exceptional invoice financing service. In other words, you can be a Godfather for small businesses with Invoice Financing mobile app development.
Understanding the Invoice Financing App Market
Understanding the market is the first step to starting any business for a reason. When you get to know what the market is worth, your customers, competitors, and demands, you can formulate your strategies better.
For example, by analyzing existing money-lending platforms, you can find out a gap in the market that you can fill with your solution. Such analysis may also lead you to the USP discovery as well as attention-grabbing features that can assure your Money-lending app development success.
So, let us get you acquainted with some interesting market stats, trends, and top Invoice Financing platforms to help you complete your market research.
The Booming Invoice Financing Market and its Trends
In recent years, invoice financing has become an increasingly popular alternative to traditional bank financing, particularly among small and medium-sized enterprises (SMEs).
But is it worth being a top FinTech business idea? Check out what we found about Invoice Financing after hours of market research.
- Industries that use invoice financing the most include manufacturing, construction, retail, healthcare, and transportation. Meaning entrepreneurs have many opportunities to target specific verticals.
- Small and medium-sized enterprises (SMEs) are the primary users of invoice financing, with demand increasing due to the COVID-19 pandemic and subsequent economic disruption.
- Traditional lenders are often hesitant to finance SMEs, making invoice financing an attractive alternative for businesses seeking cash flow solutions.
- Advances in technology, such as artificial intelligence and blockchain, are being incorporated into invoice financing platforms to improve efficiency and security.
With the market projected to experience significant growth in the coming years, entering the invoice financing industry at this time could position your FinTech business for long-term success. Besides, by specializing in specific industries or niches in the invoice financing market, you can differentiate your business and attract a loyal customer base.
On the other hand, a similar solution, Buy Now Pay Later app development, also has significantly shifted toward B2B. For example, Mondu, Plastiq, and Billie-like platforms offer BNPL solutions for both consumers and businesses, allowing small businesses to meet the expenses they must pay upfront.
All these market insights clearly imply a bright future of money-lending app development, and it would be exciting to see how FinTechs will bypass banks in financing businesses.
Invoice Financing and Factoring: What’s the difference?
Invoice financing and invoice factoring are methods of accessing working capital by leveraging unpaid invoices. How do they differ? Let’s check it out.
- Invoice financing involves using unpaid invoices as collateral to secure a loan, while invoice factoring involves selling unpaid invoices to a third-party factoring company.
- With invoice financing, the borrower retains control over their accounts receivable and is responsible for collecting payments from customers. With invoice factoring, the factor assumes responsibility for collecting payments and takes a fee for their services.
- Invoice financing may be a better option for those who want to retain control over their accounts receivable, while invoice factoring may be a better option for those who want to offload the responsibility of collecting payments.
You may ask, can a financial institute offer both financing services?
Yes, as a financial institution or fintech firm, you can offer both invoice financing and invoice factoring services. In fact, some companies may offer both options to their clients to provide a wider range of financing solutions to meet their different needs.
This can also attract a broader customer base and increase revenue by capturing more of the invoice financing market.
However, it’s important to note that the two options involve different processes and fees, so aspiring Invoice Financing companies must carefully consider the costs and benefits of offering both services.
Key players in the Invoice Financing market and their business models.
While researching the market for Invoice Financing app development, never forget to study similar service providers closely. They are most likely to become your rivals if the regions are the same. Speaking of which, let us look into some well-doing Invoice Finance platforms to give a clear idea.
FundThrough: Toronto, CA
- FundThrough is a Canadian fintech company that specializes in invoice financing.
- It funds B2B businesses with at least $100,000 in accounts.
- Its fees are dependent on your terms, starting at 2.75% for net 30 and going up for longer net terms.
Porter Capital: Alabama, US
- Porter Capital is an Alabama-based lending company that specializes in different kinds of loan products for small businesses across the U.S.
- It offers Invoice Financing, also known as accounts receivable financing, as one of its loan options.
- Rates vary depending on other qualifying factors, but businesses can apply online and expect a decision within 24 hours.
- Novicap is a European fintech providing invoice financing through its proprietary technology platform.
- It offers smart pricing based on the debtor, with interest rates between 1% and 9% APR, plus a 0.5% operations fee.
- Novicap also charges an opening fee ranging from 1% to 2.75% of the line, which includes platform access and financial reporting.
There are a lot of online platforms and Invoice Financing Startups, such as C2FO, FundBox, Fundera, etc., offering invoice financing services to small businesses. It’s on you to research and analyze available solutions to make your offerings irresistible.
Market trends and opportunities and challenges for new entrants.
As the Invoice Financing space in the fintech industry continues to evolve, it will be interesting to see how startups and FinTechs compete to grab market attention. But if you are considering entering this market, you should not overlook the challenges you may face during your Invoice Financing app development.
Competition: There are already established players in the invoice financing space, making it difficult for new companies to gain traction and attract customers.
Regulatory compliance: As with any financial service, there are strict regulations in place that new companies will need to comply with. Failing to do so can result in legal and financial consequences.
Credit risk: Invoice financing relies heavily on the creditworthiness of the debtor, which can be difficult to assess accurately. New companies will need to have solid risk assessment and management processes in place to minimize their exposure to default risk.
Technology costs: Developing a robust and secure technology platform can be expensive, and new companies may struggle to compete with larger players who have more resources to invest in technology.
Customer acquisition: Acquiring customers can be a challenge for new companies, particularly in a crowded market. New companies must invest in marketing and advertising to reach their target audience and establish themselves as a credible and trustworthy financing option.
To overcome these challenges, new companies should focus on developing an innovative and user-friendly app, building solid relationships with customers and partners, and investing in effective marketing and customer acquisition strategies.
Additionally, collaborating with established players and regulatory bodies can help navigate compliance and credit risk challenges.
Where to begin with your Invoice Financing app development
After a market acquaintance, the next step is to understand what it takes to develop an Invoice Financing application. Hence, we will dive into two crucial topics of pre-invoice-financing app development before talking about the development process.
Pay attention to legal and regulatory compliance
As an invoice financing platform, it is crucial to comply with regulatory guidelines to ensure smooth operations and avoid legal troubles. Here are some tips on regulatory compliance for developing an invoice financing app:
- Research the regulatory requirements and guidelines for your target market;
- Obtain the necessary licenses and permits to operate as a financial services provider;
- Ensure that your app adheres to data privacy and security regulations, such as GDPR(General Data Protection Regulation–EU) or CCPA(California Consumer Privacy Act-US);
- Implement anti-money laundering (AML) and know-your-customer (KYC) measures to prevent fraud and financial crimes;
- Partner with established financial institutions to provide regulatory compliance expertise and support.
Choose the right Developers
Once you have a good understanding of the market and regulatory landscape, the next step is to hire mobile app developers or a software company to develop your Invoice FInancing application. But how do you ensure that you hire the right team for the job?
Simply by researching the developers or companies, checking their portfolios, and reading reviews from their previous clients. You want to ensure that you work with a team with a solid track record of developing high-quality, scalable mobile applications.
Building an Invoice Financing App: Step-by-Step
Developing a successful Invoice Financing app involves many steps, from defining the app’s scope and target audience to designing its user interface and developing its features. This section will provide you with a comprehensive roadmap that we take to deliver user-friendly, secure, and reliable FinTech apps.
Market and Target audience Research
Invoice FInancing is a promising market that we saw earlier in the blog. So, now what you have to learn is your Target Audience. You need to figure out who your Invoice Financing app will use. For example, the target audience of Fundera is small business owners who are looking for financing options to support their businesses.
Here is how you can also find your target audience;
- Determine the demographics of your target audience;
- Identify your audience’s pain points and needs;
- Analyze your audience’s behavior and preferences;
- Determine the best channels to reach your target audience;
- Develop user personas to represent your target audience;
- Also, conduct surveys or focus groups to gather feedback;
- Use data and analytics tools to measure user engagement and identify areas for improvement.
Essential and advanced features
There are some essential features your app won’t be completed without. Then there are features you add to gain a competitive advantage and provide additional security and reliability to grab your audience’s attention. Let us explore some of both types of features so you will get an idea to list out for your app.
- User-friendly interface for easy navigation and management of invoices
- Automated invoice processing and verification
- Instant funding and payment options for quick access to capital
- Real-time tracking and monitoring of invoices and payments
- Secure data management and privacy protection
- Integration with accounting software and other business tools
Features to stay ahead of your competitors:
- Artificial Intelligence and Machine Learning for smart underwriting and risk assessment
- Customizable dashboards and reporting for better insights and decision-making
- Predictive analytics for forecasting cash flow and payment trends
- Multi-currency and multi-lingual support for global accessibility
- White-label solutions for brand customization and client retention
- API integrations for seamless connectivity with other financial services and platforms.
UI/UX precautions for Invoice Financing App design
A well-designed UI/UX is essential for an invoice financing app to provide a seamless and intuitive user experience for users. Because a clean and user-friendly interface makes it easy for them to navigate the app, access their accounts, and manage their invoices and payments. Here are some tips you can keep in mind while carrying out this crucial phase.
- Conduct user research and identify the target audience’s needs and pain points to create a user-centric design;
- Use a minimalist and consistent design that emphasizes important features and information while reducing clutter;
- Ensure the app’s interface is intuitive, easy to navigate, and provides clear instructions for users;
- Incorporate visual elements in the dashboard, such as charts, graphs, and progress bars, to help users understand their financial status and track their progress;
- Create a responsive design that provides a seamless experience across different devices and screen sizes.
Backend development → choose the right tech stack
The backend development is a vital part of the invoice financing app development process. It enables the app to securely process payments, manage user accounts, store data, and the rest of the app functionality.
A well-built backend can ensure the app’s scalability, reliability, and security, which are essential for a successful invoice financing app. Find below the tips that will help you choose the right technology to ensure a successful backend development that fulfills your long-term goals.
- Identify the app’s technical requirements and choose a technology stack that can support those requirements;
- Consider the scalability and performance of the technology to ensure it can handle the expected volume of users and transactions;
- Ensure the technology is secure and compliant with industry regulations such as PCI-DSS and GDPR;
- Choose technologies that are well-supported and have an active community to ensure long-term maintainability and upgrades;
- Evaluate the cost of the technology stack, including licensing, infrastructure, and ongoing maintenance, to ensure it aligns with the app’s budget and revenue potential.
If you want experts to work on your project, hire Fintech app developers who can complement your team.
Testing and launching the Invoice Financing App
Quality testing and deployment are crucial phases of the invoice financing app development process. At this stage, you ensure the app meets the desired quality standards and is ready for production use.
A high-performing app is a result of rigorous testing of its functionality, usability, security, and performance. It confirms that your Invoice Financing app meets the users’ needs and is stable under expected usage loads.
So, let us see how to ensure a smooth app launch for an invoice financing app:
- Plan the app launch carefully, considering factors such as target audience, marketing strategy, and launch timeline;
- You can perform a soft launch or beta testing to gather feedback from early users and make any necessary adjustments before the official launch.
- Ensure the app is fully integrated with all relevant payment gateways and third-party services to ensure a seamless user experience;
- Develop and implement a comprehensive support plan to handle any issues that may arise after the launch, including technical support and user onboarding;
- Continuously monitor the app’s performance, user feedback, and market trends to make improvements and stay competitive in the industry.
Market your Invoice Financing App
The financing app market is a highly competitive and rapidly evolving space that requires ongoing monitoring and adjustments to stay relevant and successful.
Hence, you need a well-defined marketing strategy to apply post-deployment to gain visibility, attract users, and generate revenue. Here we have researched and curated some advice to ensure effective app marketing for your invoice financing app:
- Develop a marketing strategy that speaks to the specific needs and pain points of your target users;
- Do not hesitate to utilize a mix of online and offline marketing channels to reach the target audience, including social media, email marketing, content marketing, and industry events;
- Leverage SEO and SEM strategies to improve the app’s visibility in search results and attract relevant traffic to the app;
- You can also create referral and loyalty programs as incentives to attract users to promote the app and refer new users;
- Keep an eye on the app’s performance metrics, user feedback, and market trends to adjust the marketing strategy as needed and stay competitive in the industry.
How to make money with your Invoice Financing App
Invoice Financing apps are progressively grabbing SMEs’ attention as an ultimate solution to manage their cash flow. But the app itself also has to generate revenue in order to grow and be a valuable product for the Invoice Financing company.
Basically, there are several Invoice Financing Business models widely used by such service providers. You can also adopt these models in your Invoice Financing application to generate sustainable income over the long term.
The model refers to charging a fee for each Invoice Financing transaction that occurs on the platform, either as a percentage of the transaction amount or as a flat fee.
You can also charge interest rates on the financing amount provided to the businesses based on the size of the invoice. This is a common revenue model for lenders in the invoice financing industry.
Late Payment Fees:
Another way to generate revenue is by charging a fee when a customer of a borrower or a borrower fails to repay the financing amount on time. This can act as an incentive for borrowers to repay the amount on time.
A percentage of Invoices:
It’s the simplest and most globally adopted revenue model in the Invoice Financing industry. Here the service providers keep a portion of the invoice amount in return for financing invoices for businesses. For example, the provider pays 95% of the total invoice amount and keeps the 5% as their service fee.
This can be an additional revenue model that also helps you gain more users. For example, you can offer referral programs to encourage users to refer new users to the app and earn a commission on each successful referral.
There are other ways to monetize an Invoice Financing app. But ensure you don’t get carried away in the thought of generating high revenue. Because the revenue model should align with your business goals and your target audience’s needs. You can also experiment with different models to find the one that works best for your app.
How much does it cost to develop an Invoice Financing app?
Speaking from our FinTech app development experience, the Invoice Financing application development cost can vary depending on several factors. For example,
App Features: The complexity of the app’s features and functionalities can significantly impact the development cost. The more features you want to include, the more time and resources will be required to build the app.
Technology Stack: The choice of technology stack can also affect the development cost. Using more advanced and specialized technologies can increase the cost of development.
UI/UX Design: The quality of the app’s design can play a significant role in its success. Investing in a high-quality UI/UX design can add to the development cost.
Testing and Quality Assurance: Testing and quality assurance are essential to ensure the app functions correctly and meets user expectations. These activities require time and resources and can add to the overall development cost.
Developers’ rate: Whether you hire in-house developers or a dedicated team to develop your app, their rates differ based on location.
For example, software developers in the USA may charge between $100 to $199; in Europe, the rate ranges from $50 to $199, whereas in Asia, you can hire even high-skilled developers between $15 to $45-50. The low cost of living and the value of the currency of Asian countries benefit companies around the globe to outsource the best developers at reasonable prices.
Moreover, outsourcing can be a cost-effective solution, as it allows you to access a broader talent pool and save on overhead costs. On the other hand, hiring dedicated developers offshore can give you more control over the project and ensure a higher level of quality.
Ultimately, the decision should be based on your budget, project requirements, and the expertise of the developers you are considering.
Want to help businesses with their cash flow?
If your motive is to get into the FinTech realm and disrupt the market by offering a unique financing service, Invoice Financing app development can be the key. The concept has already become one of the best alternate money-lending solutions for small businesses.
Since few among many Invoice Financing platforms offer an app, merging mobile technology with this emerging financing solution will definitely offer added advantages. Therefore, we researched and mapped out everything from the definition and its market to how to create an Invoice Financing Mobile App in this guide.
Now, if you want to discuss more Invoice Financing or technology to use to build a sturdy application, connect with us. We are so much into fintech app development and love to help flourish new FinTech ideas, specifically.