The Fintech market in India is expected to reach a value of more than Rs. 6200 billion by 2025, highlighting the immense potential for this sector. As internet penetration increases with each passing day, technology seems to determine how every company functions. Additionally, technological advancement has now started leading the way to newer and more convenient forms of financing for businesses, both big and small.
If you own a business where maintaining working capital is a constant issue, you can opt for fintech solutions including invoice financing, revenue-based financing, and more. The former option is often the first choice for many businesses, especially those where the billing cycle spans over a substantial period.
Invoice Financing: Is It Dependent On Fintech?
The following features define the interdependent relationship between fintech and invoice financiers –
Technology Allows Enhanced Threat Perception
Fintech companies are increasingly using predictive technology to determine the risk associated with a particular borrowing company. With artificial intelligence, machine learning, and the likes, an invoice finance provider can assess whether companies can repay debts on time.
Fintech Companies Are More Liquid When Compared To Traditional Banks
Invoice financing is only possible if the financier possesses sufficient liquidity to offer as credits to your company. Standard banks and lenders are struggling with inadequate funds at the moment, thanks to the current economic downslide.
Fintech, on the other hand, can rely on backing from investors, thereby possessing sufficient cash flow to aid small businesses. Therefore, your company is more likely to access working capital assistance from these companies, when compared to other lenders.
Fintech Is Open To Funding Smaller Businesses
If you consider the primary issue of the MSME sector in India today, it is the lack of reliable sources of credit. Most large banks and financiers are reluctant to offer financial packages to these small-scale industries, fearing delinquencies, and other associated risks.
Due to the availability of predictive analysis methods at their disposal, fintech can afford to provide funds to smaller companies against their invoices. Doing so, helps them to curb the financier’s risk and ensures systematic and enhanced growth for your company. Thus, the association between the financing company and your brand is beneficial for both sides.
As a business owner, you should know that invoice financing has two distinct parts, namely, invoice factoring and invoice discounting. While fintech is responsible for both, you should know the crucial differences between these two forms of working capital advance.
Difference Between Invoice Factoring And Invoice Discounting?
Invoice factoring is a process where you hand over your business’s ledger or invoice to the financer. The financier extends funds to your company and takes over the responsibility of collecting the pertinent payment, related to that invoice from the client. Thus, the responsibility of payment collection shifts from your company to the fintech company.
In the invoice discounting process, the only difference is that the unpaid invoice remains in your business’s possession. You are liable to collect payment from customers or clients, and consequently, repay the advance borrowed. This option can aid a company to maintain confidentiality when seeking advance against unpaid invoices. The contract is solely between your company and the financing institution.
Invoice Discounting: Why Opt For It?
Even if your company is eligible for business loans from financial institutions, going down the road with invoice discounting is often preferred for the following reasons:
- Hassle-free funding with no requirement for collateral, which eases the application and approval process.
- Discounting on an invoice can allow you to avail the necessary working capital immediately, thereby acting as the perfect source of emergency funds.
- If you operate a smaller company, this option is perfect since you may not be able to avail of traditional business loans.
KredX is one of the most reliable sources for such advances wherein businesses can leverage their unpaid invoice to access funds within 24 – 72 hours*.
Fintech can utilise state-of-the-art technology to predict risks, associated with businesses. Such financial institutions can also take advantage of a vast pool of cash, ensuring sufficient resources for companies. Invoice discounting is one product that fintech companies offer, resolving cash flow shortfalls for businesses.