Invoice Financing Agreement (Malaysia)
INVOICE FINANCING AGREEMENT
Contracts Act 1950 | Financial Services Act 2013 (FSA 2013) | Companies Act 2016
THIS INVOICE FINANCING AGREEMENT is entered into on [Agreement Date]
BETWEEN:
(1) [Financier Name], of [Financier Address] (hereinafter referred to as the "Financier"); AND
(2) [Borrower Name], of [Borrower Address] (hereinafter referred to as the "Borrower").
1. INVOICE FINANCING FACILITY
1.1 The Financier agrees to make available to the Borrower an invoice financing facility up to [Facility Limit] (the "Facility"). Unlike factoring, this Facility is a secured loan — ownership of the underlying invoices and receivables remains with the Borrower, and the invoices are pledged as collateral to the Financier.
1.2 The Financier shall advance [Advance Rate] of the face value of each eligible invoice submitted by the Borrower, subject to the Financier's approval of the debtor and the invoice. Eligible debtors include: [Eligible Debtors].
1.3 Each advance is repayable on the earlier of: (a) receipt of payment from the debtor; or (b) the maximum tenor of [Maximum Tenor Days] from the invoice date. If the debtor fails to pay within the maximum tenor, the Borrower shall repay the advance to the Financier.
2. INTEREST AND FEES
2.1 Interest accrues on each outstanding advance at the rate of [Interest Rate], calculated daily from the advance date to the date of full repayment.
2.2 A processing fee of [Processing Fee] is payable per invoice submitted for financing. The Financier shall deduct all fees from the advance disbursed to the Borrower.
3. COLLATERAL AND REGISTRATION
3.1 The Borrower hereby charges in favour of the Financier, by way of a fixed charge, all book debts and receivables arising from invoices financed under this Facility, together with all proceeds thereof and the benefit of all rights against the relevant debtors.
3.2 The Borrower shall ensure that all charges created by this Agreement are registered with the Companies Commission of Malaysia (SSM) within 30 days under Section 352 of the Companies Act 2016. The Borrower shall not create any prior or pari passu charge over the charged receivables without the Financier's prior written consent.
4. DEFAULT AND GOVERNING LAW
4.1 Events of default include: failure to repay any advance on its due date; submission of fraudulent or duplicate invoices; Borrower insolvency; and material adverse change. The Financier may cancel the Facility and demand immediate repayment of all outstanding amounts upon a continuing event of default.
4.2 This Agreement is governed by the laws of Malaysia. The Parties submit to the exclusive jurisdiction of the courts of [Governing Jurisdiction].
Financier (Authorised Signatory)
________________
Signature
Borrower (Authorised Signatory)
________________
Signature
What Is a Invoice Financing Agreement (Malaysia)?
An Invoice Financing Agreement in Malaysia sets out the terms on which the lender advances funds and the borrower agrees to repay them.
Invoice financing in Malaysia is regulated under the Financial Services Act 2013 (FSA 2013) as a credit or factoring business activity, with all providers required to be licensed by Bank Negara Malaysia (BNM). The Invoice Financing Act does not exist as a standalone statute in Malaysia — the activity is regulated under the general FSA 2013 framework and BNM's licensing and conduct standards. Malaysian fintech companies operating digital invoice financing platforms — such as those that have obtained BNM Regulatory Sandbox approval or full licences — are reshaping SME access to invoice financing through online platforms and automated credit assessment.
The legal structure of invoice financing in Malaysia involves a charge or security assignment (rather than an outright sale) of the receivable from the business (the borrower) to the financing company. The financing company holds the invoice as security for the advance, and the business (as trustee or assignor) collects the invoice amount from its customer and remits it to the financing company. In the event of default, the financing company may convert the charge into an absolute assignment and notify the debtor to pay the financing company directly — at which point the arrangement resembles disclosed factoring.
BNM's Credit Risk Management guidelines require licensed invoice financing companies to conduct credit assessments of both the borrower and the key debtors before approving the invoice financing facility. The Companies Act 2016, Section 352, requires the charge created over receivables to be registered with SSM within 30 days of creation to be effective against a liquidator or unsecured creditors in the event of the borrower's insolvency. Digital invoice financing platforms approved under BNM's Financial Technology Enabler Group (FTEG) framework may benefit from efficient regulatory requirements during their sandbox period.
The distinction between invoice financing and a revolving credit facility (RCF) secured by receivables is significant in Malaysian banking law. An RCF secured by receivables is treated as a loan (with stamp duty on the facility limit), while a true invoice financing arrangement may involve the sale or charge of specific receivables on a transaction-by-transaction basis. The tax treatment under the Income Tax Act 1967 and the stamp duty treatment under the Stamp Act 1949 differ between outright receivables sale (factoring) and secured lending against receivables (invoice financing).
When Do You Need a Invoice Financing Agreement (Malaysia)?
An Invoice Financing Agreement in Malaysia is needed whenever a business wishes to access immediate working capital against outstanding invoices without disclosing to its customers that the invoices have been used for financing purposes.
An Invoice Financing Agreement is required when a professional services firm — an engineering consultancy, accounting firm, or law firm — issues invoices to corporate clients on 30 to 60-day payment terms and needs immediate cash to meet office costs and professional staff salaries. Invoice financing provides confidential working capital without the client's customers knowing about the arrangement.
An Invoice Financing Agreement is needed when a manufacturer or distributor in Malaysia has a large volume of outstanding invoices from a diverse range of customers and wishes to use the entire receivables book as collateral for a revolving financing facility — drawing advances as new invoices are issued and repaying as customers pay.
An Invoice Financing Agreement is required when a startup or early-stage company that has established some trading history with creditworthy corporate customers cannot qualify for a traditional bank overdraft (due to short operating history or insufficient assets) but has a pipeline of paid invoices that can support invoice financing.
An Invoice Financing Agreement is needed when an SME in Malaysia uses a digital invoice financing platform — such as those operating under BNM's Regulatory Sandbox or with full BNM licences — to access selective invoice financing for specific large invoices on a one-off basis, without entering into a whole-book financing arrangement.
An Invoice Financing Agreement is required when a company with a long-term supply relationship with a large anchor buyer (such as a Bursa Malaysia-listed conglomerate or a government-linked company) uses the anchor buyer's creditworthiness as the basis for a supply chain finance programme, where the financing company approves the anchor buyer as the credit risk and the suppliers obtain invoice financing at rates reflecting the anchor buyer's credit quality.
What to Include in Your Invoice Financing Agreement (Malaysia)
A valid Invoice Financing Agreement in Malaysia must contain the following essential elements for legal enforceability and regulatory compliance.
Parties and Licensing: The agreement must identify the licensed financing company (FSA 2013 licence reference), the client borrower (full legal name, SSM registration, address, and key contact), and define the relationship — whether as lender/borrower (secured lending structure) or factor/client (outright purchase structure).
Eligible Invoices: The agreement must define eligible invoices — invoices for goods delivered or services rendered to approved debtors, not disputed, not subject to set-off, and representing genuine arms-length transactions. Minimum and maximum invoice amounts, maximum invoice age (from invoice date), and any sector or geographic restrictions on eligible debtors should be specified.
Advance Rate: The percentage of each eligible invoice's face value advanced by the financing company (typically 70% to 90%) must be stated, together with the timing of advances (upon submission of eligible invoices with supporting documentation) and the conditions precedent to each advance request.
Confidentiality Provisions: For undisclosed (confidential) invoice financing, the agreement must specify that the client will not disclose the financing arrangement to its debtors and will collect invoiced amounts as agent for the financing company. The client's obligation to remit all collected amounts promptly to a designated collection account must be stated.
Charge Over Receivables: The agreement must document the charge or assignment of receivables created in favour of the financing company as security — specifying that the charge is created under the Companies Act 2016 and must be registered with SSM within 30 days. The assignment of proceeds to the financing company's designated account constitutes additional security.
Financing Charges and Fees: The interest rate on advances (linked to BNM's Base Rate plus spread, charged daily on the outstanding advance balance), the service fee or arrangement fee, and any administration charges must be fully disclosed in compliance with BNM's Product Transparency and Disclosure guidelines.
Recourse and Non-Recourse: The agreement must specify whether the financing is on full recourse (client repurchases non-paying invoices), partial recourse, or non-recourse (financing company bears credit risk of approved debtors). The recourse mechanism — trigger events, repurchase price calculation, and timeframe — must be documented.
Termination and Wind-Down: The termination notice period (typically 30 to 60 days), treatment of outstanding advances and un-remitted collections upon termination, and the financing company's rights to notify debtors and collect directly upon termination must be specified.
Additional compliance elements for a Invoice Financing Agreement (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
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Forms Legal. (2026). Invoice Financing Agreement (Malaysia) (Malaysia) [Legal document template]. Forms Legal. https://forms-legal.com/malaysia/financial/loans/invoice-financing-agreement-malaysia
"Invoice Financing Agreement (Malaysia) (Malaysia)." Forms Legal, 2026, https://forms-legal.com/malaysia/financial/loans/invoice-financing-agreement-malaysia.
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year = {2026},
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note = {Free legal document template. Based on Financial Services Act 2013 (Act 758)}
}Frequently Asked Questions
Invoice financing (invoice discounting) and factoring in Malaysia both use outstanding invoices as the basis for working capital finance, but differ fundamentally in legal structure and operational mechanics. In factoring, the client sells or assigns the receivable outright to the factor, who takes over debtor collections and notifies the debtor to pay the factor directly — the arrangement is disclosed to the client's customers. In invoice financing, the client retains ownership of the receivable (the financing company takes a charge or security assignment over it), collects from its customers itself, and remits proceeds to the financing company — the arrangement is typically confidential and the client's customers are unaware of the financing. Factoring is suitable for businesses that want collections management services; invoice financing is preferred by businesses that want to maintain direct customer relationships. Both are regulated under Malaysia's Financial Services Act 2013 and require BNM licensing.
The charge over receivables created by a company in favour of an invoice financing company in Malaysia must be registered with the Companies Commission of Malaysia (SSM) within 30 days of its creation under Companies Act 2016, Section 352. Failure to register the charge renders it void against the company's liquidator and any person who acquires an interest in the charged property for value — meaning an unregistered charge over receivables would not be enforceable in the event of the borrowing company's winding-up. The charge must be registered using the prescribed SSM e-lodgement form (Form PNA.29 for a charge on book debts/receivables). The financing company's solicitors typically handle the registration process. The charge instrument itself must also be stamped at LHDN under the Stamp Act 1949 before or concurrently with registration. Once registered, the charge appears on the company's public record at SSM and provides notice to subsequent creditors.
Invoice financing is widely available to Malaysian SMEs through licensed factoring and financing companies, major commercial banks' trade finance divisions, and an emerging ecosystem of BNM-regulated fintech platforms. For SMEs that cannot qualify for traditional bank credit facilities, invoice financing offers an alternative pathway to working capital based on the creditworthiness of the SME's customers rather than the SME's own balance sheet. SME Corporation Malaysia (SME Corp) and Credit Guarantee Corporation Malaysia Berhad (CGC) have collaborated with invoice financing providers to offer government-supported guarantee programmes that reduce the cost of invoice financing for qualifying SMEs. BNM's Regulatory Sandbox has facilitated the entry of digital invoice financing platforms — such as peer-to-peer invoice financing portals — that use technology to reduce the cost and turnaround time for SME invoice financing approvals, making the product accessible for smaller transaction sizes that traditional factoring companies may not handle efficiently.
If a debtor disputes an invoice that has been submitted to an invoice financing company in Malaysia, the dispute typically triggers the recourse provisions of the financing agreement. Under a recourse structure, the financing company notifies the client that the disputed invoice has become ineligible and requires the client to repay the advance made against that invoice — the client must resolve the dispute with its customer directly. Under a non-recourse structure, the financing company may still exercise recourse if the non-payment is due to a dispute (rather than the debtor's insolvency), as most non-recourse facilities only cover credit risk (debtor insolvency) and not commercial disputes. The client should report disputed invoices to the financing company promptly — failure to disclose disputes may constitute a breach of the financing agreement's representation and warranties, entitling the financing company to terminate the facility and demand repayment of all outstanding advances.
The tax treatment of invoice financing in Malaysia under the Income Tax Act 1967 depends on the structure of the arrangement. For a secured lending structure (where the financing company advances a loan secured by receivables), the financing charges paid by the client are deductible as borrowing costs under Section 33 of the Income Tax Act 1967, subject to arm's length pricing. For an outright receivables sale (factoring structure), the difference between the face value of the receivable and the discounted purchase price represents the financing cost, also deductible as a business expense. The financing company's income — whether interest income from secured lending or factoring commission — is subject to corporate income tax at the prevailing rate of 24% under Section 4 of the Income Tax Act 1967. Invoice financing transactions do not generally attract GST/SST in Malaysia, as financing services are exempt from Sales and Services Tax under the Customs Act 1967 framework, though service fees may have specific tax treatment depending on their characterisation.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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