Embedded Credit vs Invoice Finance

By Annapoorna


Updated on: Dec 14th, 2022


4 min read

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Businesses are always looking for solutions that increase cash flow and accelerate their growth while maintaining operational expenses at an acceptable level.

Meaning of Embedded Credit

Embedded credit is a financing option that allows the borrower the luxury of flexibility in terms of repayment. In simple terms, embedding finance refers to non-financial providers providing finance tools or services such as payment processing or lending.

In recent years, BNPL (Buy Now, Pay Later) schemes have become wildly popular, offering a larger audience the ability to afford various purchase items with a flexible repayment schedule. Through the introduction of embedded credit, financing processes are simplified for consumers to access services when needed. 

Primarily, embedded credit integrates Lending-as-a-Feature into digital platforms. Ideally, instead of redirecting the customer traffic to a third-party site, the option of availing credit is made available at the same place, on the same interface. This helps elevate user experience and facilitates convenience.

Earlier, one would have had to approach a bank or any other financial institution to make a substantial purchase to obtain a loan. More often than not, the loan terms were unfavourable, discouraging most customers from opting for the same.

However, with embedded credit, the pain of seeking credit elsewhere is eliminated since the credit facility can be availed at the point of purchase itself, thus saving time and money. 

Meaning of Invoice Finance

Unpaid invoices serve as collateral for invoice financing, a form of short-term borrowing. Most times, businesses are left waiting on payments from their customers for extended periods. If the invoices are large in value, they could cripple the business due to the financial crunch. 

To meet its short-term financing needs, the business approaches a financier and receives funds amounting to a percentage of the invoice value in the form of short-term financing. Once the customer makes the payment, the balance amount of the invoices is disbursed to the business. Additionally, the financier also charges a financing fee for providing the facility.

By opting for invoice financing, the business can find a solution to invoices unpaid that often leave funds tied up, thus providing them with increased cash flows.

Difference between Embedded Credit and Invoice Finance

BasisEmbedded CreditInvoice finance
Cost1. No costs involved as long as the payment is made within the specified period.1. A finance charge is to be paid for availing the short-term credit facility.
Flexibility2. The facility is often available at the point of service, that is, the customer can avail the credit facility at the same place where the purchase is made.2. Here, the credit facility has to be availed separately.
Collateral3. There is no need to provide any collateral in this case.3. The invoices will be used as collateral against the short-term credit availed.
Period of payment4. Normally has a period of credit extending up to 120 days.4. In most cases, the period of credit goes up to 90 days.
Applicability5. Has a wide range of uses in industries of logistics, e-commerce (B2B and B2C), retail tech, FMCG (Fast moving consumer goods) and the like.5. It is more focused on B2B transactions.


Businesses can use both these financing options as well for the perfect balance of working capital based on their customer base. The primary aspect is that no funds get tied up in current assets for a long duration.

About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more


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