Do you know what sets invoice discounting apart from traditional funding options? Its flexibility.
Ideally, it is a funding option that does not add to your existing debt or create new ones. It is merely an asset-based financing option; wherein, businesses use their unpaid invoices to raise capital.
Over the years, invoice discounting has been acknowledged as a useful tool for those businesses whose growth is hampered due to the slow movement of accounts receivables and long working capital cycles.
In case you have been looking for alternative credit options for your business, you may check out the perks of invoice discounting. Be sure to go through the reasons as to why you may also consider reviewing/reassessing the option from time to time.
Invoice Discounting – A Brief Introduction
It is essentially a process through which enterprises use their accounts receivables to raise immediate funding to cater to working capital deficits.
Businesses leverage their unpaid invoices by approaching an invoice discounting platform and selling the same to access a percentage of the receivable amount as a cash advance.
On maturity, when the customer pays the invoice amount, the enterprise repays the borrowed amount. A predefined service charge is also paid along with the borrowed sum.
What works most in favour of this funding option is that businesses can use the cash availed to meet any working capital shortage. Above all, the fact that entrepreneurs’ clients are not involved in the agreements, allows them to maintain confidentiality and retain customers successfully.
Based on your need and requirement, you can avail any of these types of receivable discounting: whole turnover discounting, confidential discounting, and selective discounting. When you opt for invoice discounting services, you may expect to benefit in these ways –
- Boost cash flow
- Get access to readily available funds
- Facilitate growth in business
- Pay suppliers on time
Now that we have covered the basics of invoice discounting India, you should also explore how and why reviewing it from time to time can favour you.
Top Reasons To Review/Reassess Invoice Discounting
These are among the top reasons that highlight why you should review invoice discounting regularly–
Your Business Grew In Size
Usually, financiers who discount invoices provide funds at lower interest rates to businesses that generate a high turnover. If your company has grown in size since its inception or since you first availed discounting services, you may negotiate with the financier for better terms.
Your Working Capital Requirements Have Changed
It may be the case that when you had first approached an invoice discounting platform, your working capital requirements were different. But with growth in your business, your working capital composition has changed and so has your company’s needs. So, you may either look for a receivable discounting financier who helps you meet your changing requirements or look for an alternative source to cater to it.
For instance, compared to the previous set-up, your firm needs quicker access to working capital to facilitate the dynamic growth stage. Invoice discounting platform like KredX, extends cash flow solutions within 24-72 hours* to help accelerate business growth.
The Business Model Has Changed
Sometimes entrepreneurs change their business model to cater to industry changes or to increase customer base. Such a change often impacts how businesses raise invoices and the terms they extend to their customers.
This may directly impact on how businesses use invoice discounting and the terms of availing the same. If you plan to revamp your old business model, make it a point to ascertain how it will change the scope of discounting and associated terms.
To Avail Funds At Affordable Rates
One of the most important reasons to review existing invoice discounting is to check whether your financier is transparent about the costs of discounting.
So, if you feel you are paying too much for the discounting services, it’s time to review the pros and cons of your current option. If you find the cons outweigh the pros or are generally dissatisfied with the general terms of service, you may look for other receivable discounting platforms.
These reasons make it essential for you to review the discounting invoice service you use so that you can make the most of it in your favour. Also, checking the performance or scope of the same helps you understand whether it’s a decent funding option for your growing business or not.
Invoice financing is one of the best means of raising funds to meet working capital needs these days. However, to maximise its utility as per changing needs and requirements of the firm, you should frequently review the services and their limitations. This will allow you to identify when the same is not working out for your business and may consider switching to another competent alternative.