Invoice Financing vs. Invoice Discounting

Invoice financing enables your business to raise short-term finance by keeping outstanding sale invoices as collateral. This article explains the meaning of invoice discounting and invoice financing and the difference between the two.

Meaning of invoice discounting

Invoice discounting enables the vendors to request early payments in exchange for a discount. One can use the TReDS platforms for invoice discounting. Not only does it help the vendors manage better cash flow, but it also helps strengthen relationships with supply chain partners.   

The funds raised help to boost the cash flow in the organisation. Instead of waiting for the customers to pay, the organisation can discount the sale invoices from their buyers and meet its working capital requirements.

Clear Invoice Discounting, for example, directly integrates with ERPs, digitises the supply chain and reduces manual interventions. It even finances early payment requests via bank or TReDS portals, providing multiple ways for early payments at an agreed discounted rate, creating a win-win situation for both parties.

Meaning of Invoice Financing

Invoice financing is a method by which a vendor can get funds against verified sales. In most cases, about 80% of the invoice value is financed. This, however, depends upon the credentials of the buyer company and its credit rating. It helps solve the working capital crunch that MSMEs face, which forms a crucial part of most supply chains. 

Furthermore, it enables vendors to access capital at the time when their receivables are blocked in complex payment cycles. Availing invoice financing helps vendors to optimise their working capital in a fast and efficient manner.

Difference between Invoice Financing and Invoice Discounting