Finance

The Major Aspects to Know the Difference Between Invoice Financing and Channel Financing

Difference Between Invoice Financing and Channel Financing

Proper management of finances in a business is the primary task of an entrepreneur. Irrespective of the nature and turnout of a business entity, adequate funding is the most crucial element in running a company. 

Fund management, also known as asset management, is one of the determining factors behind maintaining the value of a business entity.

financing

Cash flow is the lifeline of any business, be it a small start-up or an established company. An entrepreneur has to ensure that there is sufficient fund to keep the daily chores of a firm running. 

In this regard, business owners can opt for the following two types of financing–

  • Channel financing. 
  • Invoice financing. 

What is channel financing?

Starting from a manufacturer to a seller, each one is linked in the supply chain. Keeping all the entities in this chain stable is essential to maintain financial stability. For the owner of a business, meeting working capital needs is mandatory to keep a company functioning. 

Channel financing is a source of finance offered by financial institutions to supply chain stakeholders (including buyers and suppliers). It helps them stock a range of branded and high-end goods by having paid suppliers in advance. 

In other words, through channel financing, financial companies extend short-term working capital facilities to the buyers and suppliers.

This source of finance is somewhat different from conventional lending. It is need-based funding, which extends working capital finance to suppliers, dealers, and manufacturers having business connections with big companies in India. 

It can be extended in two forms –

  • Cash credit facilities.
  • Bill discounting line of credit.
Checkout & Read also:  11 Useful Tips for Managing your Finances in Your 30s

Channel financing is one of the easy ways to avail small business finance. It helps an entrepreneur expand his/her business’s reach and maintain a seamless flow in the firm by avoiding any obstructions arising due to lack of working capital.

What is invoice financing?

Invoice finance is a process where a business entity can borrow money against the sum due from its customers. Unpaid invoice often blocks working capital in a business. 

Drawing financing through these unpaid invoices help businessmen to cope up with immediate cash flow needs, paying off dues to suppliers, stocking up inventory, managing working capital needs, meet payroll costs, and so on. 

This source of finance is also referred to as ‘receivables financing’, or ‘accounts receivable financing’.

Invoice finance is also a sort of short-term credit extended by lenders on the basis of unpaid invoices. It provides the entrepreneur with immediate funds, which he/she can utilise is bearing several expenses of a business. Here, the unpaid invoices are used as collateral to avail required funds. It is upon the business owner thereafter, as to where in the firm he/she wants to utilise the fund in. 

He/she can use it to upgrade equipment, pay bills, improve cash flow, expand the business, invest in other plans, and so on. It helps to deal with problems arising when customers take too long to pay the dues.

To help entrepreneurs bat difficult situations in business, financial companies come ahead with several types of assistance. This helps the business survive financial shortcomings.

Other forms of financing

Other than channel and invoice finance, organisations can also opt for traditional business loans from NBFCs like Bajaj Finserv. They also provide unique and attractive offers to help customers avail a loan in a faster, simpler, and hassle-free manner. 

Checkout & Read also:  6 Benefits of Buying Long-term Car Insurance

Running a business efficiently is a complicated task. The first and foremost concern is to ensure that the business never runs out of cash. Insufficient funds could lead to unnecessary lag or even the breakdown of a business. 

Although there are multiple options to address financial shortcomings in a business, it is important to choose the right alternative in the right situation.

You may also like

You cannot copy content of this page