Supply Chain Finance Vs Invoice Discounting

Every business, irrespective of its scale of operation, requires substantial capital to keep its operations continuous and profitable. Without adequate cash flow supply, the business will fail to meet its working capital requirement, and consequently struggle to keep operations running during the low phase of the business cycle.

Fortunately, several financing options like supply chain finance and invoice discounting are available today that help businesses to access funds, as well as, boost their working capital necessities. Such financing options eliminate the need to avail loans with stringent eligibility criteria. Nonetheless, companies must make an informed decision, when it comes to supply chain finance vs invoice discounting.

At KredX, you can receive working capital by availing our invoice discounting services within 24 to 72 hours* and streamline operational activities smartly.

What Is Supply Chain Finance? 

Supply chain finance or payables finance is an efficient process of boosting the working capital of a business. It works in favour of both the parties involved, i.e. the buyer and seller, and allows them to optimise cash flow.

In a supply chain finance set-up, there are three parties involved –

1. Buyer
2. Seller
3. Financier 

In this type of financing, the supplier sells the invoices raised against a buyer to a financier at a discounted rate, and uses the money to boost their cash flow. On maturity, the financier approaches the buyer and collects the payment for the invoices. Due to the involvement of the third party, there is no confidentiality in supply chain financing.

To simplify the confusion regarding supply chain finance vs invoice discounting, individuals should become familiar with the basics of invoice discounting as well.

What Is Invoice Discounting?

Invoice discounting is a financing option that allows businesses to access funds by leveraging their sales ledger. Companies can use their unpaid accounts receivable to access funds and boost their immediate cash flow. 

The amount raised is usually a significant portion of the invoice value. On maturity, businesses are required to approach their customers to collect payment, and subsequently pay off financiers. When the payment is cleared, enterprises receive the remaining balance.

Typically, there are two parties involved in invoice discounting set-up –

• Seller
• Financier 

Since there are only two parties involved in invoice discounting, the entire process is kept confidential. 

Supply Chain Finance Vs Invoice Discounting - Which Is Better?

Before selecting any particular finance option, individuals need to weigh in these following factors - 

• Type or category of business
• The scale of business operation
• Sales ledger management of the business
• Ability to optimise resources
• Businesses’ capability to optimise resources
• Capital requirement 

Other than these, they should also factor in terms of service extended by financiers. At KredX, you can avail funds against unpaid invoices, and get them discounted to meet the working capital gap. Typically, creditworthy businesses with a positive credit history, can avail our invoice discounting services instantly. 

Supply Chain Finance Vs Invoice Discounting – Similarities: 

Besides becoming familiar with the differences between supply chain and invoice discounting, it is also essential to be aware of their similarities as well. For instance, both invoice discounting and supply chain financing are alternative means of financing. 

Additionally, unlike business loans, both supply chain financing and invoice discounting finance come with less stringent eligibility criteria, followed by a simple application and verification process. Typically, businesses engaged in industries like manufacturing, construction, recruitment, wholesaler, etc. avail of these alternative financing options. 

Both invoice discounting and supply chain finance, help businesses resolve their problems like slow payment, cash flow crunch, etc.

Supply Chain Finance And Invoice Discounting - Differences:

The table below highlights some noteworthy differences between invoice discounting and supply chain finance. Going through the same will help to resolve the confusion regarding supply chain finance vs invoice discounting successfully. 

Hence, it is important for the individuals to become familiar with the characteristics of both these alternative financing options. Subsequently, they should compare them to ascertain supply chain finance vs invoice discounting - the better choice for them.