In recent times, invoice financing has gained popularity owing to reasons like instant availability of collateral-free funding and hassle-free application process. At 10% of total credits from financial institutions, invoice or bill financing can make a significant difference in bridging the working capital deficits of businesses.
The process of availing funds is further simplified with KredX, one of the most promising invoice financing companies in India.
Invoice financing in India refers to the process through which businesses can avail advances against outstanding invoices from their customers. In turn, businesses pay a certain percentage of this total invoice amount as a fee to their lender.
Through this method of financing, businesses can meet their short-term liquidity requirements by availing a percentage of the value of their unpaid invoices as a loan. These unpaid invoices are considered as accounts receivables. It means that businesses will receive the stipulated amount against invoices raised, but at a later date.
Utilising this method to avail funds, businesses can improve their cash inflow, invest in operations to foster growth, pay their suppliers and employees, and see to a host of other financial needs. Invoice financing helps companies do away with the necessity to wait for customers to settle bills and gain access to necessary funding readily, thus making them a popular form of financing sought by businesses. A customer questionnaire performed resulted in 22% of the respondents favouring bill financing as a convenient mode of instant funding.
Before opting for invoice finance, it is crucial to learn how the entire funding process is carried out. Here’s how it works.
Most businesses usually sell their goods and services to their customers (like retailers and wholesalers) on the basis of credits. It means that customers do not usually pay upfront for such goods and services, and are instead charged at a later date. Now, when the business sells its goods or services to customers, it generates an invoice payable within 30-90 days. Invoice financing is the process through which businesses can avail instant funding against such invoices, by following these steps –
Invoice financing thus allows businesses to mobilise the capital which would otherwise have been held up in unpaid invoices.
As a business owner, you can opt for two types of invoice financing. These are invoice factoring and invoice discounting.
While both these types of invoice finance operate along the same principles, their lending structure is different.
Also known as debt factoring, this particular type of financing enables businesses to avail capital by selling their unpaid invoices to a third-party factoring company.
The factoring company (financier) purchases these invoices for a certain percentage of their total value and takes over the responsibility to collect payments against these invoices.
Invoice discounting, on the other hand, is carried out under confidentiality. In this process, the business’s customers are not aware of the fact that their unpaid invoices are being utilised to raise funds.
Here, the business has total control of the sales ledger and is committed to the task of collecting the outstanding amount against invoices from customers.
Nonetheless, irrespective of the type of invoice finance one opts for, he/she can avail up to three times more cash through it than with other forms of financing.
To understand how each of these types of invoice financing function, it is crucial to learn the differences between the two. Following is a table that illustrates how these methods of borrowing against debt differ from each other.
|Parameters||Invoice Factoring||Invoice Discounting|
|Control and visibility||Through factoring, the financier manages the credit-control process, as well as the business’s sales ledger. Financers subsequently pursue customers over unpaid dues, allowing businesses to do away with the hassle of checking on their customers for such collection.||With invoice discounting, businesses retain the control of their sales ledger alongside credit control and collect payments themselves. Furthermore, customers are unaware of the invoice discounting agreement between businesses and financiers.|
|Adjustments made to funds disbursed||Under this arrangement, businesses are offered funds in advance against individual invoices. Adjustments to the funds disbursed are made daily.||Under discounting, financiers renounce control over the business’ sales ledger. Thus, any changes to the funding amount disbursed are made on a monthly basis, after businesses provide the monthly reconciliation of their invoices.|
Despite these differences, both these types of invoice financing can be extremely handy funding avenues for businesses irrespective of the industry or sector they belong to.
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The last few years have been witness to the emergence of several invoice financing companies in India. Among them, KredX is India’s leading invoice discounting marketplace that offers working capital for businesses against unclear invoices with completely transparent terms and conditions.
Business owners can easily opt for invoice discounting through our online platform and avail funds instantly against the value of their invoices. Here’s how the process works –
The external investor, in turn, receives payment when the invoice is paid out at the end of the tenure.
With this extremely streamlined process, businesses can avail funds in no time and address their financial requirements without hassle. Thus, with working capital readily available, businesses no longer have to undergo downtime in receiving funds regularly and can keep their cash flow steady throughout.