Here at Loanzen we use the model of invoice discounting to bridge the gap in your cash flow requirements. Invoice discounting is financial services that enable you (the business) to release the funds which are tied up in unpaid invoices. In simpler terms, it allows you to get paid ahead of time. This is extremely vital for small businesses that require cash for daily activities.
Invoice discounting is a form of Invoice financing. The underlying concept however remains the same- you make use of the pending cash flow in the invoice to raise a % of the same at an earlier date. There are two types of invoice financing.
Invoice Discounting vs Factoring
The major difference between invoice discounting (read more on Wikipedia) and invoice factoring (read more on Wikipedia) is the impact on the liabilities of the borrower. In the case of discounting, the borrower has the liability of a loan which would have to be paid back once the invoice has been cleared by the customer. When it comes to factoring however, the lender buys the invoices from the borrower and it then becomes the lender’s job to follow up with the customer for the payment on the invoice.
The good thing about invoice discounting is that your customer will not know about any of the cash flow issues that you are facing. The lender does not purchase your invoice; instead a loan against the pending receivable is given to you. Your business still retains control over the invoice.
Invoice Discounting at Loanzen
Here at Loanzen we use the method of invoice discounting to finance your cash requirements. It all starts when you sell a product or a service to your customer. Let us for the sake of understanding, assume that your business made a sale worth ₹1,00,000 and that your customer then raises an invoice for the services rendered with a clause to make the payment at a future date (30 – 90 days).Cash pending invoices even before it's pay time, forget working capital worries Click To Tweet
So now, you have the invoice worth ₹1,00,000 in your hand but no cash just yet. The invoice is an asset since it represents cash receivable. However, in the time that it takes for the invoices to settle, you continue to have operating expenses of your business. This is where you make use of that invoice to cash in a discounted value of the invoice to realize the cash flow much earlier than due. The advantage is that you can realize 70% to 80% of the invoice amount in just the span of 5 to 7 days. When the invoice is finally paid by the customer you can then repay the loan amount along with the interest.
How Does Loanzen Fit in the Picture?
Loanzen acts as the platform where you can create a profile of your loan requirements. We let you know if you are eligible for a loan by filling in just a few basic details. Once we know that you meet the criteria, Loanzen acts as the platform where we connect you with the right lender. Once the terms of the loan are mutually agreed upon, the same is disbursed to your business and Loanzen charges a nominal fee which is paid by you, once the funds have been transferred.
That in a nutshell is what Invoice Discounting is all about. Some of the benefits of Invoice Discounting are that you still have control over the invoice and the receivables. Once the invoice has been paid by the customer, you only repay the loan amount with the interest on the loan. Also, since the discounting process will only provide you with a loan that is always less than the total amount of money that you will receive in the future, it ensures that there is no heavy liability in your books.