The claim follows a raft of reports that showed a lack of credit was hampering growth in the SME sector.
The lobby group representing small business, ISME, released a survey last Monday which found that one in every two SME loan applications has been rejected by the banks.
The latest Central Bank quarterly report, released on Tuesday, showed that SME lending was down 1.4% over the second quarter of the year.
Invoice finance, or invoice discounting as it is also known, provides bridging finance to a company once the completion of a sale has been made.
The company repays the invoice finance once it collects the proceeds of the sale.
The association said its members agreed to make €1.8bn in invoice finance available to the Irish SME sector by the end of June this year, but only €1.27bn was drawn down over the following three months.
“Irish companies, who are looking to improve their cashflow, need to urgently look at this significant credit reservoir, that so far has been left largely untapped, said association chief executive Kate Sharp.
“The figures show that in the second quarter alone half a billion euro was ‘left on the credit shelf’ by Irish business.
“We would ask that business people and credit providers should think beyond the usual avenues such as overdraft and loan arrangements and instead start looking at the lines of credit that are more readily available through invoice finance,” said Ms Sharp.
The association said that Ireland is lagging behind other European countries in terms of using invoice finance facilities.
ECB figures show that 34% of SMEs across Europe are now using leasing or invoice finance.
This represents a 7% increase in the past two years. In Ireland, fewer than 1 in 1,000 SMEs are availing of these facilities, said the association.
“We are saying to SMEs and large businesses alike, who need cashflow solutions, to contact our members and see if we can help.
“Our members are ready, willing and able to step into the breach and provide these funds for Irish businesses,” added Ms Sharp.
Members of the association include: AIB Commercial Finance; Bank of Ireland Finance; Barclays Trade and Working Capital; Bibby Financial Services; Close Brothers Invoice Finance Ltd; National Irish Bank and, Ulster Bank Invoice Finance.