{"id":7100,"date":"2021-04-15T06:42:23","date_gmt":"2021-04-15T06:42:23","guid":{"rendered":"https:\/\/kredx.com\/blog\/?p=7100"},"modified":"2023-10-26T05:51:34","modified_gmt":"2023-10-26T05:51:34","slug":"can-invoice-financing-be-beneficial-for-smes","status":"publish","type":"post","link":"https:\/\/www.kredx.com\/blog\/can-invoice-financing-be-beneficial-for-smes\/","title":{"rendered":"Can Invoice Financing Be Beneficial For SMEs?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The SME sector is widely touted as the Indian economy\u2019s <\/span><i><span style=\"font-weight: 400;\">engine of growth<\/span><\/i><span style=\"font-weight: 400;\">. As per a report shared by FICCI, this sector is responsible for creating over 11.10 crore jobs in the nation. Small and medium enterprises also make up around 40% of India\u2019s export and 45% of its manufacturing output.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Access to business loans more readily has also been pivotal to the growth of SMEs<\/span> <span style=\"font-weight: 400;\">in India. But, while obtaining loans has become simpler over the years, many enterprises still struggle to repay them for more than one reason.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That\u2019s why, with the growing popularity of alternative funding options like <\/span>invoice financing<span style=\"font-weight: 400;\">, more businesses are now interested in tapping into their unpaid invoices rather than taking out a new loan.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In case you are an SME owner and are wondering the worth of invoice or bill financing, we would recommend you first go through the concept and its offering. Following this, you may be in a better position to decide whether the same is going to be beneficial for your firm or not.<\/span><\/p>\n<p><i><span style=\"font-weight: 400;\">On that note, let us take a quick look at the fundamentals of <\/span><\/i><strong><a href=\"https:\/\/www.kredx.com\/working-capital\/invoice-discounting\"><i>invoice financing<\/i><\/a><\/strong><i><span style=\"font-weight: 400;\"> in brief.<\/span><\/i><\/p>\n<h2><b>Invoice Financing \u2013 In Brief\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Essentially, it is a process of accessing funds with the help of unpaid invoices. Enterprises use their accounts receivables (yet to be realised) to access immediate cash and meet <a href=\"https:\/\/mandii.com\/working-capital-loan\/\" target=\"_blank\" rel=\"noopener\"><strong>working capital<\/strong><\/a> and other urgent cash flow-related requirements.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">These pointers walk you through this process in general \u2013<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">SMEs<span style=\"font-weight: 400;\"> sell products or services to customers on credit and draw an invoice containing details of the same.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Due date is agreed upon when the customer will pay the seller back at set terms.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Repayment periods can be as long as 90 days.\u00a0 To shorten the working capital cycle, businesses approach fintech companies providing integrated cash flow solutions like <strong><a href=\"https:\/\/www.kredx.com\/working-capital\/invoice-discounting\">invoice discounting<\/a>\u00a0<\/strong><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Fintech companies like KredX offer a platform to various firms where they can upload their unpaid invoices and enchash them on their portal.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">After verifying those invoices and scrutinising their creditworthiness, such financier disburses an agreed percentage of the invoice amount.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">On maturity, the seller (in case of invoice discounting) collects the invoice amount and pays it to the financier.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The fintech company then proceeds to release the remaining balance after deducting its service charge.<\/span><\/li>\n<\/ul>\n<h2><b>A Quick Glance At The Types Of Invoice Financing\u00a0<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">In a broader sense, one can divide into two types of <\/span>invoice financing<span style=\"font-weight: 400;\">. You should note that both work on the same principle but follow a different financing structure.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h3><b>Invoice Discounting<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This works in favour of businesses that do not wish to involve customers and want to maintain confidentiality. In <\/span><strong><a href=\"https:\/\/kredx.com\/blog\/how-does-an-invoice-discounting-facility-work\/\" target=\"_blank\" rel=\"noopener\">invoice discounting<\/a>,<\/strong><span style=\"font-weight: 400;\"> enterprises can retain control over the sales ledger and are also responsible for collecting the invoice amount from customers on maturity.\u00a0<\/span><\/p>\n<ul>\n<li aria-level=\"1\">\n<h3><b>Invoice Factoring<\/b><\/h3>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In the case of invoice factoring, businesses sell their invoices to financiers at a discounted rate and hand over their credit control. On maturity, financiers collect unpaid invoices from the customers. This does not leave any scope for confidentiality as the customers are directly involved in the arrangement.\u00a0<\/span><\/p>\n<h3><b>Salient Features And Benefits Of Invoice Financing\u00a0<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Take a look at these top features and benefits of invoice or receivable financing \u2013<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Businesses do not necessarily need to provide any collateral to access funds. You can raise money based on the outstanding invoice\u2019s value and the customer\u2019s creditworthiness.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Until the end, the ownership of the invoice is retained by the business, meaning you will not lose your control over the sales ledger.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">You can release up to 90% of the tied-up capital in the unpaid invoice through financing.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Leading fintech companies like KredX lay down easy to meet eligibility and disburse invoice amount within 24 hours \u2013 72 hours*. This feature comes in handy when you need to address immediate obligations like paying vendors, starting new projects, paying salaries, etc.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Invoice discounting helps businesses maintain confidentiality about their financial standing and further helps business keep their customers out of the loop. Thus, it facilitates better customer relationships.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">SMEs can provide goods and services on credit for a long tenure. This will further help them increase their customer base and retain existing ones without disrupting their daily operating activities.\u00a0<\/span><\/li>\n<\/ul>\n<h3><b>Bottom Line<\/b><\/h3>\n<p>Invoice financing<span style=\"font-weight: 400;\"> is a valuable financing option for small and medium enterprises and even better than traditional business loans in some respects. Enterprises can select between accounts receivable discounting or factoring to raise funds within a short span to address your working capital-related problems smoothly. It allows businesses to trim the working capital cycle and speed up<strong><a href=\"https:\/\/www.kredx.com\/investor\/short-term-investment\/\"> short-term investments<\/a>.<\/strong><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The SME sector is widely touted as the Indian economy\u2019s engine of growth. As per a report shared by FICCI, this sector is responsible for creating over 11.10 crore jobs in the nation. Small and medium enterprises also make up around 40% of India\u2019s export and 45% of its manufacturing output. Access to business loans [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[35,65],"tags":[423,37,50,75,76,77,97,185,79,38],"class_list":["post-7100","post","type-post","status-publish","format-standard","hentry","category-business","category-invoice-discounting","tag-bill-financing","tag-invoice-discounting","tag-invoice-financing","tag-invoice-factoring","tag-kredx","tag-msmes","tag-short-term-investment","tag-sme-sector","tag-smes","tag-working-capital"],"_links":{"self":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/7100","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=7100"}],"version-history":[{"count":1,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/7100\/revisions"}],"predecessor-version":[{"id":13629,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/posts\/7100\/revisions\/13629"}],"wp:attachment":[{"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/media?parent=7100"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/categories?post=7100"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.kredx.com\/blog\/wp-json\/wp\/v2\/tags?post=7100"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}