Impact of Invoice Discounting on Enterprises’ Profitability

Invoice discounting is a quick way of obtaining funds for a business. Invoice discounting uses unpaid customer invoices as collateral for providing a short-term loan. The borrowed funds are paid back by the business to the lender on the maturity of the invoice. Finance companies could lend up to 100% of the invoice value after charging a fee for such service.

Why it is a better investment avenue for corporates?

Many small or medium businesses struggle in managing their cash flow and this can become a hurdle in their day-to-day operations as well as business growth. Even if the sales are high but the waiting time to receive cash for unpaid invoices is lengthy, a business can run into a cash crunch inviting several business problems.

• Enhanced cash flow: As cash can be raised as and when the invoice is issued, it allows for better control over investment as well as improved business operations and growth decisions.
• Diversified investments: A business can diversify its investment portfolio by investing in invoices. Invoice discounting companies offer multiple asset classes to choose from based on the risk appetite of the business.
• Ease of investing: Today, invoice discounting is done through online platforms which are easy to use and operate on faster approval and disbursement of funds. Today, there are invoice discounting platforms that are highly tech-driven and designed to improve cash flow and speed up expansions with the highest level of confidentiality.
• Risk assessed: Generally, the invoices that are available for invoice discounting are checked for quality to avoid bad debts. However, it is crucial for an investor to choose the right platform to safeguard its investments.   
• Quick Funds: Unlike other traditional business loans, invoice financing provides faster cash with a reduced requirement for overdrafts or similar debt alternatives.
• No assets collateral: Invoice discounting is essentially an unsecured business loan received in lieu of unpaid customer invoices.
• Release locked funds: Invoice discounting assists businesses in releasing blocked funds in the form of customer invoices. It is particularly beneficial in cases where a business has fulfilled its contractual obligations at the early phase of the contract but is yet to receive the payment because of a distant due date.

Invoice discounting offers a great investment avenue for businesses, keeping in mind certain risk factors. An investor must always analyse the brand value of the financing company before investing.