Invoice Financing vs. Cash Credit

When Indian businesses need working capital, the default request to the bank is often a Cash Credit (CC) limit. However, as businesses grow, they frequently outgrow the hard collateral required to scale these limits, making transaction-based facilities like invoice financing more relevant.

Cash Credit (CC)

A CC facility acts essentially as an overdraft on a current account. It provides general liquidity for the business up to a sanctioned limit.

• Security: Typically requires hard collateral (property, fixed deposits) plus a floating charge on inventory and book debts.
• Drawdown: Flexible up to the limit, based on monthly stock and debtor statements.
• Repayment: Ongoing, as cash flows into the main operating account.
• Limitation: The limit is capped by the value of the collateral. Fast-growing, asset-light businesses often max this out quickly.

Invoice Financing

Invoice financing is a transactional facility tied directly to specific sales. The lender advances a percentage (usually 80-90%) of a raised invoice value.

• Security: The primary security is the invoice itself and the creditworthiness of the corporate buyer. While a corporate guarantee is standard, heavy property collateral is often not the primary underwriting driver.
• Drawdown: Triggered by the raising and verification of a specific invoice.
• Repayment: Settled directly when the buyer pays the invoice on its due date.
• Suitability: Highly suitable for businesses with strong, creditworthy corporate buyers. The limit can often scale with sales volume rather than fixed assets.

Which is right?

They are not mutually exclusive. Many established businesses maintain a core CC limit for general operations and utilize invoice financing (often off-balance sheet, depending on structure) specifically for large, creditworthy contracts to fund growth without tying up existing collateral.

Disclaimer: General information only, not financial advice. Structural specifics depend entirely on the final lender's terms and conditions.