Invoice discounting can help your business get instant working capital. If your business has its cash tied up in unpaid invoices, this facility provides an apt solution. You can use these funds to cover operational costs or maintain a smooth cash flow. You can also choose to invest the acquired funds in assets. To know more about invoice or bill discounting and its advantages and eligibility, read on.
Bill discounting is an invoice financing tool that helps your business get instant cash. You can visit a bank or an invoice discounting platform and get funds against any unpaid customer invoices. The customer pays their dues to the bank directly and the bank charges you a commission for the service. This way, you can maintain smooth business operations by getting your receivables sooner.
This tool provides various advantages to businesses in running a smooth operations. Some of these advantages are:
Also Read: How to Grow Business With Personal Loan
Fulfil the following criteria to ensure your business is eligible for this financing option:
Your business must be officially registered in India. It should also be operating in India.
Most lenders may ask for a certain amount of revenue or turnover. This amount may vary as per the lender.
Your business must generate accounts receivables and have a customer invoicing history.
Your customers should have a good credit record. This determines whether they will pay their invoices on time.
Your business must also have a good credit record and financial status.
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You may have to provide audited financial statements or other relevant documents to demonstrate the financial status of your business.
You must provide details about the business invoices you want to discount. The details should include:
In addition to this, invoice factoring is another invoice financing solution that can help your business get working capital. Refer to the following table to learn more about the differences between the two solutions.
| Factors | Invoice Discounting | Invoice Factoring |
|---|---|---|
| Meaning | Access funds against unpaid invoices and retain control | Sell unpaid invoices where the factoring company handles credit control |
| Control | Businesses manage sales ledger and customer relationships | Factoring company manages sales ledger and collections |
| Confidentiality | Financing is undisclosed to customers | Customers are aware of the arrangement |
| Collections | Businesses collect payments | Factoring company collects payments |
| Flexibility | Choose which invoices to finance | More structured, often involves all invoices |
| Costs | Lower fees, more business responsibility | Higher fees, comprehensive service |
| Bad Debt Protection | Not provided | May include bad debt protection |
| Creditworthiness | Focus on business credit rating | Focus on customers’ credit rating |
When pursuing business endeavours, unpaid customer invoices could tie up the inflow of revenue. Invoice discounting ensures that you have the working capital you need to achieve your business dreams.
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Invoice discounting can be a good solution for any business in need of immediate working capital.
Yes, invoice discounting is legal in India. The factors that establish its legality are:
Some of these are as follows:
A few disadvantages of bill discounting include:
