Selective invoice discounting is one of the most effective ways to access cash quickly and solve any cash flow crisis. It not only helps to bridge the working capital gap but also facilitates liquidity.
Nonetheless, one should find out about its accompanying features and terms of service in detail to maximise its benefits from it.
What Is Selective Invoice Discounting?
Selective invoice discounting is a funding option wherein business owners can choose specific invoices and borrow money against them as per their requirements. It is also known as single invoice discounting and signifies that entrepreneurs can sell a single or a couple of invoices as and when they face a deficit in their working capital.
Invoice discounting in India not only helps to access funds immediately but also allows doing so at one’s terms. Such a process enables businesses to retain control over their processes and encourages zero third-party involvement.
Usually, it is considered to be cheaper when compared to raising money against every invoice. To elaborate, for invoice discounting, usually, the entire sales ledger is sold to a financier.
Selective Invoice Discounting – How Does It Work?
The pointers below offer a fair idea about the working of selective invoice discounting in India in a nutshell –
- It is up to the business owner to decide when they wish to release capital from a particular invoice.
- Businesses get in touch with an invoice discounting platform and send a copy of the invoice they wish to get discounted.
- The service provider verifies the invoice sent to ascertain the value and the creditworthiness of the customer against whom the invoice is raised.
- Subsequently, the fintech approves the selected invoices and quotes a percentage as a fee.
- Businesses can receive up to 95% of the value of their invoice as advance payment typically, within 24 hours to 72 hours.
- Once the customer pays off the invoice amount, the business owners avail the invoice balance, minus the financier’s discounting fee.
Who Is Suitable For Selective Invoice Discounting?
In most cases, any business with creditworthy customers and high-value invoices are deemed eligible for accessing funds that are otherwise blocked in pending invoices.
Other than these, companies subject to a low phase of the business cycle, wanting to keep their operational activities smooth can avail of this funding option as well.
Furthermore, individuals who do not intend to borrow funds against the entire sales ledger and wish to exercise the freedom to select specific invoices for discounting can also opt for this facility.
It is said that evolving businesses are among the ones that tend to benefit the most from this particular invoice discounting option.
Benefits Of Selective Invoice Discounting
The pointers below highlight the most significant benefits of selective invoicing discounting –
- The entire process is relatively hassle-free and devoid of lengthy contracts.
- Businesses do not necessarily incur any additional liability.
- Individuals can use this funding option, along with various other finance alternatives to meet working capital and other requirements.
- One can easily opt for this facility to inject cash into the business operations as and when deemed necessary.
- It is one of the most feasible ways of boosting cash flow.
- Since it is a one-time transaction, businesses are not required to pay monthly or quarterly fees.
- This funding option helps to convert accounts receivables into cash, readily without impacting the balance sheet.
Other than these, there is the involvement of customers in the agreement. Also, the control over the sales ledger remains with the business owner at all times.
Limitations Of Selective Invoice Discounting
This funding option has its share of drawbacks as well. The following pointers elucidate them in brief –
- It is often difficult for small businesses to access selective invoice discounting facilities.
- Businesses need to have an efficient credit control strategy, along with a robust credit score to get accepted by the financiers.
- It often takes weeks to arrange and set up this funding facility.
Regardless, if you wish to expand your scale of business operations, you may look into alternative funding options like – lease rental or revenue-based discounting. Such funding options prove useful in raising capital and facilitating growth without piling up your debt burden. However, it is crucial to pick a trusted fintech company to avail of the best-integrated cash flow solution and resolve your capital-based requirements effectively.
If your business has a small but well-knit channel of customers and is susceptible to irregular sales, you can raise cash quickly through selective invoice discounting. Such a funding option proves more useful as it does not add on to your existing loan burden and has no requirement for collaterals.