Everything You Need To Know About Invoice Discounting
Invoice discounting is probably the easiest way through which business
avail sufficient capital to meet various operating expenses. It is one of the simplest types
of financing that allows individuals to avail a short-term business loan by utilising their
unpaid invoices. With KredX, you can avail invoice discounting services and get
quick access to funds within 24-72 hours*.
Following is a look at what this particular form of financing entails, how it can be utilised
and whether it is good for a business’ health and performance.
What is Invoice Discounting?
Invoice discounting is the process through which businesses can
their receivables to avail financing for any short-term requirements. Like other forms of invoice financing, invoice
discounting works on the same principle, wherein businesses can sell their unpaid invoices
to lenders and avail a percentage of their invoice’s value as a cash advance.
The capital availed through invoice discounting can then be utilised for the growth and
expansion of a business, thereby increasing operational efficiency.
However, unlike invoice factoring, a degree of confidentiality is involved under the method
of discounting. Here, customers are not aware that the business is borrowing against their
invoice through a lender. This can often work as a downside for invoice discounting since
the business has to chase after the unpaid invoices themselves.
How Does Invoice Discounting Work in Practice?
The process to opt for invoice discounting has been streamlined in recent times owing to the
emergence of various fintech lending platforms.
So, if you are looking to avail the benefit of invoice discounting for your business, you
must know in detail about how the process works in practice, which is elucidated below.
- A company prepares invoices against the goods or services sold to its customers.
- The details of these invoices are then forwarded to the lending institution.
- Thereafter, funds are offered against a certain percentage of the total value of these
- The process of collecting the invoice is then carried out either by the business’s
credit controller or by the finance provider.
- Finally, when the debtor/customer makes a payment against the invoice, the balance
amount is forwarded to the business-owner, minus the service fee.
The funds availed through invoice discounting can be utilised to repay debts, pay bills or
even undertake expansion plans based on the raised amount. KredX is one such company that
offers invoice discounting facility to businesses within 24-72 hours*. Being a completely
digital platform, KredX facilitates a paperless and transparent procedure.
Types of Invoice Discounting:
When it comes to invoice discounting, there are a few types that you can choose to maintain a
steady flow of working capital.
These are –
Whole turnover invoice discounting
With this type of funding against an invoice, every invoice that a business generates
across the turnover is discounted to raise funds, irrespective of the needs of the
Confidential invoice discounting
Like its name suggests, with this type of financing, the entire process is carried
out in confidentiality. It means that suppliers or customers of a company are
unaware of the business raising capital against invoices before payment is received.
Selective invoice discounting
Spot factoring or selective invoice discounting are some of the examples where single
receivable invoices are sold to third parties to raise capital.
These are the three principal types of invoice discounting which help companies acquire
working capital for their businesses without hassle.
Benefits of Invoice Discounting:
- Increase in cash flow
Business owners can release a lump-sum amount otherwise tied up in unpaid sales
invoices, and increase the cash flow. This method of availing capital works best for
businesses which have a smaller number of clients generating high invoice values. It
is mainly because for such businesses, a single unpaid invoice can keep a
substantial capital tied up.
- Instant availability of financing
With this method, you can avail financing within 72 hours of applying. Thus, the
capital is available instantly, much faster than other methods of traditional
- Confidential transactions
You may not inform your customers when you opt for this method of financing, allowing
you to carry out the transaction confidentially. It puts a business’s concerns of
losing customer confidence to rest.
- Increased funding with business growth
Unlike other business loans and overdraft facilities where funding is available only
up to the stated amount, you can avail a higher amount with invoice discounting if
you generate high-value invoices. Thus, with the growth in your business, you can
avail increased funding against such invoices.
- Protection against bad debts
When you avail invoice discounting for your business, few financers offer protection
against bad debt for your business. This protection comes to force if a customer
turns insolvent and fails to pay against the invoice.
While these are some of the advantages, you must also be aware of a few of the
drawbacks of opting for this facility.
Disadvantages of Invoice Discounting:
It might be difficult for smaller companies to obtain credits through invoice
discounting. However, businesses may be able to do away with this disadvantage if
they can establish a steady track record, and instil confidence among financiers.
- No assistance in collecting sales receipt payment
Unlike invoice factoring, you do not receive assistance in collecting your unpaid
sales invoices from your financier under this method of financing.
- Associated costs
Sometimes associated charges for utilising invoice discounting can be quite high. You
can, however, address this shortcoming by looking for financiers offering the best
deals with the proposition.
The advantages of invoice discounting, however, outweigh the disadvantages by quite a
significant margin. It can, thus, be safely concluded that opting for this method of
financing can be quite beneficial for a business.
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How to Know If Invoice Discounting is Right for Your Business?
Given that there are so many financing options available in the market, it can be difficult
to determine if invoice discounting can be the right choice to fund your business. In that
case, you must take note of the following factors –
- Minimal bad debts for your business.
- Timely payments from customers, with the entire value of invoices paid.
- Robust and effective credit control measures.
- Meeting the minimum turnover level as mandated by the financier.
If your business complies with the factors mentioned above, opting for invoice discounting
can be extremely beneficial for your business. In this regard, you can check the hassle-free
invoice discounting option offered by KredX – one of India’s leading invoice discounting
platforms offering this facility. Simply upload your invoices on our online portal and avail
working capital to keep your business’ operations steady.
Use our Free Invoice
Generator to create invoices for your Business.
Faqs on Invoice Discounting
Invoice discounting companies typically email or call the
enterprises generating the invoices to verify if the details
provided are genuine or not.
Invoice discounting facilities can be availed by businesses
across all sectors, including – logistics, manufacturing,
services, FMCG, pharmaceuticals, chemical, etc.
No, these are collateral-free cash solutions, wherein funds can
be availed without providing any security.
To understand if invoice discounting is good for your business,
you will need to take note of a few factors like – whether your
customers settle their invoices regularly, whether your business
meets the minimum turnover criteria, etc.
With factoring, the financier takes control of the invoice
payment recovery, as well as the credit-control process.
However, with invoice discounting, you remain in control of
invoice collections and receive payments from customers.
Yes, invoice discounting is a type of loan, wherein the credits
are availed against the value of unpaid invoices.
With invoice discounting, you can enjoy benefits like – quick
disbursal of funds, collateral-free availability of capital,
simple eligibility criteria, etc.
If a customer defaults to settle an invoice, funding is removed
unless the business has a bad debt protection cover in place.