Financial Inclusion Through Invoice Financing

InvoiceMate
4 min readApr 1, 2023

Financial inclusion is an important economic goal of the United Nation. There are multiple enablers of financial inclusion. In the lines to follow, we will look at financial inclusion through invoice financing.

What Is Financial Inclusion?

According to World Bank, Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs. Financial inclusion is aimed at eliminating the impediments that bar people from joining the financial sector and utilizing its services to improve their living. Putting simply, financial inclusion is all the activities to make available everyday financial services to a larger population at an affordable cost.

How Financial Inclusion Is Enabled

Financial inclusion can be enabled through:

  • Providing access to formal financial services e.g. bank accounts, digital wallets, and remittance transfers.
  • Providing access to formal financing services e.g. business loans, micro-financing, and an overdraft.

According to World Bank figures, around the globe, 1.7 billion adults still don’t have access to very basic financial services like a bank account. This inaccessibility holds them from actively contributing to the economy.

Why Financial Inclusion Is Important?

Financial inclusion is vital for the economy but it is more critical for the well-being of the individuals themselves. It helps individuals up-scaling their living standards through access to financial services. With access to financial services, they can perform economic activities more efficiently and earn more to improve their living standards. Financial inclusion of a person contributes to the community, society, country, regional and global economy respectively.
United Nations and other global bodies put a lot of emphasis on financial inclusion because in this way poverty and economic disparity can be reduced. Financial inclusion acts as an enabler to 7 out of 17 Sustainable Development Goals by United Nations, known as UNSDGs. According to the world bank financial inclusion is a key enabler to reduce poverty and boost shared prosperity.

Fintech and Financial Inclusion

In recent years fintech has contributed a lot to financial inclusion. Innovative solutions like mobile/branchless banking, cashless transactions, digital transfers, digital wallets, and peer-to-peer financing have dramatically changed financial horizons.
The evolution of mobile data networks has contributed a lot towards financial inclusion. In developing and under-developed economies where a significant portion of the population shies away from conventional banking for multiple reasons, mobile banking has opened the doors of new opportunities. Now people in far-flung areas with no access to the bank nearby can enjoy these facilities on their mobile phones.

Financial Inclusion and Financing

Access to formal financing can help small businesses in maximizing their potential. With financing, businesses can explore new markets and increase their profitability. Microfinancing can enable the unemployed population to start new small-scale businesses and contribute toward personal, family, and social well-being.

Financial Inclusion Through Invoice Financing

Invoice financing is a type of business financing where businesses get financing against their receivable invoices (accounts receivable). This helps them maintain their cashflows. With liquid cash readily available, businesses can grow at a higher pace creating more economic activities. Expansion of business leads to the creation of more employment. This way the businesses are not only helpful in changing the lives of business owners but also the population around them.

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Challenges of Invoice Financing

Theoretically, invoice financing seems to be the most viable financing solution but unfortunately, that is not the case. Out of more than 8,600 trillion in financing markets, invoice financing contributes merely 3,566 billion. This makes it 0.1 percent of the total financing market. There are multiple reasons behind this meager share. As discussed earlier, in invoice financing, the invoice itself acts as collateral for financing. An invoice is an internal trade document between buyer and seller and lacks legal backing. It is therefore not easy to verify the integrity of an invoice by a 3rd party. An invoice presented for financing can be subject to multiple frauds:

  • Fake or fresh air invoice
  • Duplicate financing
  • Hidden Disputes
  • Collusion
  • Re-Ageing
  • Errors and Omission

More about invoice financing challenges can be found here.
To verify the integrity of an invoice the compliance team has to establish the authenticity of

  • The Seller
  • The Buyer
  • The Transaction

The due diligence process for invoice financing is long, tedious, and costly. Considering the short-term nature of invoice financing, unit economics becomes inviable for banks or financing institutions. This is why banks and FIs don’t opt for invoice financing as the preferred financing medium.

The Solution — InvoiceMate

InvoiceMate is the world’s first blockchain-powered invoice management system that acts as an invoice financing enabler. InvoiceMate covers the whole journey of invoices from procurement to payment on the blockchain. This makes invoices created on InvoiceMate, immutable and always verifiable.
InvoiceMate offers a unique service named “Know Your Invoice” or (KYI). KYI employs contemporary technologies to make invoice operations trustable.
By combining the trust and transparency of blockchain with AI Bots that perform multiple checks, InvoiceMate verifies the integrity of invoices in real time. Besides that, it builds credit scoring ultimately leading to risk profiling.
InvoiceMate is an invoice financing marketplace where invoice financing customers are connected to multiple financing institutions.
More about KYI can be found here.

KYI provides a cost-effective real-time invoice financing compliance service to banks and FIs. With InvoiceMate KYI, MSMEs and informal businesses can have access to invoice financing which is not possible through conventional financing methods. With access to invoice financing, MSMEs can improve their cash flow and achieve their actual potential. By expanding business horizons, they can provide more employment while improving their own financial stature. This is what financial inclusion is all about. Secure invoice financing acts as an enabler for financial inclusion.

Visit invoicemate.net to know more about the world’s first blockchain-powered invoice management and financing system.

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