Invoice discounting also called Bill Discounting is a way in which a company can borrow short term funds from banks or financial institutions based on their outstanding invoices. Invoice Discounting is a manner in which businesses can raise short-term funds to meet short-term liquidity needs. Invoice Discounting is an alternative to a business loan or an overdraft facility. Under Invoice Discounting, the company provides the unpaid bills to the banks or financial institutions and in return, receives funds up to 90% of the outstanding bill value. It helps keep cash inflow from customers constant and they can pay within their normal credit period.
Invoice discounting platforms work like matchmaking services for Businesses with Invoices and Investors seeking alternative financing solutions with high returns. Such platforms host a range of Investors from Individual Investors to Banks and NBFCs. Discounting platforms serve this purpose as the tenor for this facility generally ranges from 30–90 days.
Benefits of Bill Discounting
- Effortless withdrawals
- Flexible repayment tenure
- Strengthened cash flow
- Interest is to be paid only on the used amount
- Easy authentication
- Quick processing with hassle-free documentation
Process of Bill/Invoice Discounting
- Invoices are being raised when the seller sells the goods on credit
- Accepting the invoice means, that the buyer has acknowledged paying the amount on the due date
- For discounting purposes, the seller approaches the financial institution
- As per the creditworthiness of the buyer and legitimacy of the bill, the bank or NBFC is assured
- Bank or NBFC disburses the fund to the seller post deducting the fee, discount, and appropriate margin which is already defined
- Furthermore, the seller receives the funds which can be used for other business purposes
Features of Bill Discounting
- Credit Evaluation
A bank will consider the goodwill of the seller as well as the past payment records of the buyer who needs to pay to the bank.
- Banking Partners
The buyer, who is partnering with a good bank, and has a Good Credit Score, will ensure your bank that the paying party is reliable. The endorsement from the buyer’s bank will work in your favor.
- Bank to Bank Dealing
Invoice financing transaction happens between banks where the buyer’s bank doesn’t need to intimate the seller of the reimbursement instruction. It deals, directly, with his bank, to determine the discounting terms.
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