{"id":6836,"date":"2021-01-05T06:21:23","date_gmt":"2021-01-05T06:21:23","guid":{"rendered":"https:\/\/kredx.com\/blog\/?p=6836"},"modified":"2023-10-26T05:51:56","modified_gmt":"2023-10-26T05:51:56","slug":"how-is-technology-transforming-the-invoice-discounting-space","status":"publish","type":"post","link":"https:\/\/www.kredx.com\/blog\/how-is-technology-transforming-the-invoice-discounting-space\/","title":{"rendered":"How Is Technology Transforming The Invoice Discounting Space?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">In theory, <\/span><a href=\"https:\/\/www.kredx.com\/working-capital\/invoice-discounting\"><b>invoice discounting<\/b><\/a><span style=\"font-weight: 400;\"> is an excellent financing solution. Cash-strapped businesses can release their locked-away funds in unpaid invoices at a discounted rate to meet several short-term obligations.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Be it taking up a new project or paying suppliers in advance; invoice discounting plays a vital role in maintaining a healthy and smooth-running supply chain.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, manual invoice discounting is full of frills, which can be an impediment to seamless financing and management of day-to-day operations. In this regard, technological disruptions in this discipline have brought about numerous changes.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Blockchain and Machine Learning have been at the forefront of this change, allowing this space to be more dynamic, efficient, and faster.\u00a0 <\/span><\/p>\n<h2><b>Drawbacks of Conventional Discounting<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Before delving into the nitty-gritty of how technology has revolutionised this system, it may be pertinent to look at a few areas where traditional <\/span><b>invoice discounting<\/b><span style=\"font-weight: 400;\"> lacks.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\">\n<h3><b>Time-Consuming Process<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The primary issue that plagues this financing option is the verification process. Financiers, for obvious reasons, cannot blindly trust an enterprise to present legitimate invoices.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Thus, lending institutions need to reconcile accounts receivables of the seller with the accounts payable of the buyer to verify the validity of submitted bills.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Now, this process can take a considerable amount of time, leading to delay in fund disbursal. Since cash flow requirements are time-sensitive, enterprises found it challenging to turn to <\/span><b>invoice discounting<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\">\n<h3><b>Eligibility<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Financiers conventionally examine a business\u2019s financial records, alongside credit rating to determine its eligibility. However, these factors do not always present the true merit of an enterprise.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Besides these, traditional financiers took to a static discounting rate, when sanctioning credit against invoices, without sparing any consideration for several micro and macro factors at play in a supply chain.\u00a0<\/span><\/p>\n<h2><b>Technological Advancements In Invoice Discounting<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Blockchain technology has been a leading factor in boosting invoice discounting\u2019s popularity over recent years. <\/span><i><span style=\"font-weight: 400;\">How?\u00a0<\/span><\/i><\/p>\n<p><span style=\"font-weight: 400;\">Blockchain is essentially a decentralised ledger where transactions once recorded, cannot be tampered with. And invoice discounting is a system that involves more than one stakeholder. Hence, a public ledger that cannot be manipulated is an apt technology in this respect.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Besides blockchain, Machine Learning has also contributed to a more dynamic invoice discounting space. Fintechs like KredX have deftly integrated these technologies to create a seamless and hassle-free financing solution for SMEs.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Take a look at the advantages these technologies bring \u2013\u00a0<\/span><\/p>\n<ul>\n<li>\n<h4><b>Streamlined Verification<\/b><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Invoice discounting generally involves a company submitting all its outstanding bills, unless it is going for selective financing. It\u2019s safe to assume that those invoices have been drawn up to multiple clients.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Blockchain technology simplifies this multiple-point verification and reconciliation process by connecting the buyer\u2019s and sellers\u2019 networks.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It enables buyers and sellers to reconcile their statements in real-time via this technology immediately as a transaction takes place. Since the lending institution sits right in between these networks, it can verify all details instantly by accessing the public ledger without risking a tamper.\u00a0<\/span><\/p>\n<ul>\n<li>\n<h4><b>A Greater Ambit<\/b><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Technological advancements in this discipline have broadened the inclusivity of <\/span><b>invoice discounting<\/b><span style=\"font-weight: 400;\">. Financiers do not solely rely on the financial records of a company to make a call.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Since all documents are readily available in blockchain, any company with unpaid invoices can approach a financier for cash flow solutions. It also does away with the concern of invoices\u2019 credibility because there\u2019s no scope of data manipulation with blockchain in play.\u00a0<\/span><\/p>\n<ul>\n<li>\n<h4><b>Uniformity Across The Board<\/b><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">There\u2019s no standard format for drawing up an invoice, and companies and other participants of a supply chain can draft their bills differently. Machine Learning enables systems to convert discrepant invoice formats into a uniform one.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This way, financiers can verify documents more easily, in turn, expediting the fund disbursal process.\u00a0<\/span><\/p>\n<ul>\n<li>\n<h4><b>Dynamic Discounting Rates<\/b><\/h4>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">A flat discounting rate is somewhat at odds with the financial ecosystem of a supply chain. It\u2019s influenced by a host of factors, both micro and macro, which remains unaccounted for under the traditional approach.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Macro factors, like geopolitical tensions, change in exchange rates, etc. can significantly influence the dynamics of transactions.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Thus, it\u2019s only sound to discount invoices at a rate reflecting the heft of these factors. Machine Learning enables financiers to offer discount rates customised and suited to the borrowers.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Besides these, B2B integrated cash flow solutions providers like <a href=\"https:\/\/www.kredx.com\/\">KredX<\/a> offer companies a platform to utilise their unpaid invoices to gain access to <a href=\"https:\/\/www.kredx.com\/what-is-working-capital\/\">working capital.<\/a> Hence, it greatly benefits companies in terms of a faster and more dynamic financing process.\u00a0<\/span><\/p>\n<p><b>Bottom Line<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The technological strides in the <\/span><b>invoice discounting<\/b><span style=\"font-weight: 400;\"> space have worked wonders to meet the credit gap faced by small and mid-sized enterprises. These help financiers do away with the scepticism of extending funds to SMEs, who lack credit history or properly audited financial records. Thus, creating a more holistic financing system.\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In theory, invoice discounting is an excellent financing solution. Cash-strapped businesses can release their locked-away funds in unpaid invoices at a discounted rate to meet several short-term obligations.\u00a0 Be it taking up a new project or paying suppliers in advance; invoice discounting plays a vital role in maintaining a healthy and smooth-running supply chain.\u00a0 However, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":6837,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[65],"tags":[208,921,37,922,79,362],"class_list":["post-6836","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-invoice-discounting","tag-financing","tag-hassle-free-financing-solution","tag-invoice-discounting","tag-machine-learning","tag-smes","tag-technologies"],"_links":{"self":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/6836","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/comments?post=6836"}],"version-history":[{"count":1,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/6836\/revisions"}],"predecessor-version":[{"id":13673,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/6836\/revisions\/13673"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/media\/6837"}],"wp:attachment":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/media?parent=6836"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/categories?post=6836"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/tags?post=6836"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}