Bill discounting or invoice discounting is the chance to borrow the sanctioned amount of short-term based funds from a lender on the outstanding invoices that the borrower holds. Small or medium-sized businesses require such funds to continue meeting their daily needs.
Let’s take an example from our daily schedule of excessive outstanding in some cases. There may be situations when the bigger businesses also need to shut down even after increased debt via loans. But small businesses can’t even exist in such cases as they already have very limited funding available to them and need a huge amount to compensate with. What to do in that case?
Such kind of financing assists the business in case of short of cash while the customers would complete the payment of outstanding invoices later on. Bill discounting supports the business to move on for the inventory that will trigger the business running to fetch future orders flawlessly.
Why bill discounting on preference?
Assume yourself as an SME, when you just delivered a big project with the raised invoice followed and got the confirmation of payment from the client after 30 days or more. Now, in between, you pitched another client and that client wants to start the project immediately. Now in this case what will you do as you don’t have enough amount in hand to start the new project at all?
Here bill discounting can be an advantage for SMEs.The alternative financing solution to SMEs of bill discounting provides working capital finance in the form of invoices paid before the stipulated deadline.
Features of Bill discounting
- You need to show the raised invoice to the lender and get the funding without any security reference.
- A hard copy is not mandatory but the soft copy of the invoices is accepted.
- Present the total amount of invoices to receive 90% of that as finance.
- The sellers are having ownership of all the invoices in the process.
- There are diversified options to choose from for financing whether online or offline and they serve as per your needs.
- The eligibility to get the finance is lenient and the finance will be provided at low rates with less paperwork.
What is the work procedure for bill discounting?
- The SMEs raise invoices for the services they provide or goods that are supplied to the companies. Generally, the credit period covers the range of 30 days to 120 days.
- ✔ Now, here to remove the delay in the finance collections with the reduced risk factors associated, SMEs can present their invoices to the service provider company for invoice discounting and collect the finance.
- Within the period of 1 to 2 days, the raised invoices will get converted into cash and transferred to the businesses at an affordable discounting rate.
- With the help of such financing, Small or medium enterprises(SMEs) can complete a set of business projects with the supported payments from the lenders.
So, with bill discounting, you don’t need to wait for 30 to 120 days to get the invoices paid which can help in achieving future projects in hands for progress on business.
How can SMEs Benefit from bill discounts?
There are a few unavoidable reasons for SMEs that can be plus points to opt for bill discounting to enhance productivity in their businesses.
- Collateral or security-free financing
To get the excess funding via a bank or any other lenders, there is a demand for security documentation as a guarantee to avail of the funding. The SMEs can use their assets in crucial conditions like gold, home, etc. for security here. But with bill discounting this negative phase can be omitted. The only additional affordable minimal fee is deducted from the invoice payable while opting for bill discounting. This minimal amount is the payment to the service to release the funding.
- Fast accessibility to working capital
For excess funding, businesses move for bank loans in general. There are conditions with SMEs needing working capital faster than bank loans. In such cases bill discounting can be the correct solution to get immediate cash as soon the invoices are raised. The quick access to cash support helps businesses to work with more than one assignment at a time to expand their business with the payments of their dues or any financial requirements.
- Reduction of fund collection time
The wastage of time impacts other projects to get delivered when the delivery of services or goods is done with one project and then raised invoices. But the payment in cash takes too much time. Bill discounting cuts off this long period by converting the blocked fund into cash to help you move to the next step of your business to grow.
- Cost-effective discounting cost
When you opt for a bank loan, the interest rates are an additional burden on the borrower. While you choose bill discounting, it can have two included costs a service charge for the facility and discounting fee. The discounting fee here is the cost of borrowing funds. The service fee is based on the annual turnover of the business that is using the facility. These two charges are still pocket-friendly for the SMEs that can lead their business towards a profitable graph of success.
- The flawless working strategy of funding
The complete process of bill discounting is done by the discounting provider company, so the borrower can focus on business growth completely. The only help of the business is to provide the documents required to proceed and then paperwork with other operations is hectic for the service provider company.
Bottom Line
Nowadays there are plenty of lenders who are accepting applications from small or medium enterprises to finance their raised invoices to support their business productivity. These lenders or companies check your business sales volume as per the current status of your business growth to sanction the funding for invoices. Even the condition benefits everyone involved in the process whether it is buyers or financial institutions providing funds and suppliers. So, the selections for the bill discounting can be a more profitable deal than any other option.