Invoice Factoring vs. Invoice Discounting | Know Your Financing Options

The MSME sector shelters around 63 million enterprises that contribute 30% to India's GDP, 45% to manufacturing, 40% to exports, and employ over 113 million people. MSMEs across the globe are now climbing the ladder of success, owing to the financial aid made easily accessible to them by new-age NBFCs and banks.

The financial aids are designed to help businesses streamline their cash flow, sail through market fluctuations and other challenges, as well as thrive in competitive industries by seizing every growth opportunity. Two of the most significant financing tools that are driving growth for MSMEs today are invoice factoring and invoice discounting in India. Businesses can best prepare to address financial challenges by leveraging these key aids.

Invoice factoring and invoice discounting both bring a host of benefits for businesses that need immediate financial solutions to optimize their cash flow. However, they often must face the dilemma of invoice factoring vs. invoice discounting, given that there are certain similarities; for example, both financing methods involve the use of invoices to improve liquidity.

Getting familiar with the differences between these two options can help businesses make informed decisions based on their specific financial position, credit history, and immediate needs. Before deciding on the financing solution, it is important to understand the specific purpose that each option serves, and what factors set them apart. In this blog, we will explore the key differences between factoring and invoice discounting.