Explaining the Terms Supply Chain Finance, Invoice Discounting And Factoring

There are various channels of raising the required capital which businesses tap into to cover their cost overheads. Despite this, there are a number of small and medium enterprises which suffer from a concurrent deficit of a strong financial base to operate. As a result, it can get rather difficult for them to continue with the manufacturing process as the lack of funds can hinder such a development as they are unable to pay for necessities like raw materials, utility bills, salary, etc.

As a result, a large number of small and medium businesses are looking at supply chain finance (SCF) to bridge this financial gap. This is because sufficient SCF along with invoice discounting and factoring can help a business obtain the necessary funds to run.

Supply Chain Financing

Supply chain financing is a relatively modern method that links a buyer, seller, and the financial institution to enable a faster and more efficient transaction. This can significantly improve a business’ efficiency and reduce costs along with providing short term credits to both buyer and seller to boost working capital.

Invoice Discounting

This refers to using the unpaid bills of a company as collateral against an advance. It is a short-term finance option that allows greater cash-flows.

Factoring

This refers to the process wherein a business allows third parties to handle its sales ledger, invoice settlement, and due payments. It is usually preferred by businesses that do not have a dedicated team to monitor their finances and thus prefer outsourcing the process of payment.

Additional read: A Differentiation On Supply Chain Finance, Invoice Discounting And Factoring

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