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.
1) What Is Supply Chain Finance?
2) What Is Invoice Discounting?
3) Supply Chain Finance Vs Invoice Discounting - Which Is Better?
4) Supply Chain Finance Vs Invoice Discounting – Similarities
5) Supply Chain Finance And Invoice Discounting - Differences
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 –
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.
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 –
Since there are only two parties involved in invoice discounting, the entire process is kept confidential.
Before selecting any particular finance option, individuals need to weigh in these following factors -
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.
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.
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.
|
Parameters |
Supply chain finance |
Invoice discounting finance |
|
Credit control |
The financier gains control of the business’s sales ledger. |
The financier does not gain any control over the business’s sales ledger. |
|
Confidentiality |
The financier approaches the customer to collect the payment, making it impossible to maintain confidentiality. |
In invoice discounting, the customer is not aware of the financier’s involvement. |
|
Suitability |
This financing option comes in handy for small and medium-sized businesses, and helps to access funds quickly. |
This financing option proves suitable for big and medium-size businesses, and helps to meet the working capital gap successfully. |
|
Collection |
The financier is responsible for collecting payment from the customer on behalf of the company. |
The business is responsible for collecting payment from the customer. |
|
Amount of funds |
Businesses can avail up to 85% of the invoice’s value. |
The amount of value raised through invoice discounting depends on several factors like – customer’s creditworthiness, invoice amount, applicant’s eligibility, etc. |
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.