Online Bill Discounting and Its Importance for Small Business Owners
Due to payment delays, small business owners sometimes need help with cash flow problems. Businesses must consider other financing forms to meet their working capital loan requirements. Among the myriad financing options available is bill discounting.
Bill discounting facility or bill invoice discounting in India is available through bill discounting platforms such as KredX.
KredX offers bill discounting solutions to help small businesses with working capital requirements. This article discusses how bill discounting companies in India help business owners solve cash flow problems.
What Are Bill Discounting Solutions?
Bill discounting solutions are business finance solutions that small businesses can leverage for immediate cash against their pending accounts receivables. Business financing or bill finance solution acts as short-term loans to help SMEs meet their working capital requirements. Businesses can request a loan from the financing company for the same amount as their pending invoice. After the invoice matures, the business repays the financing company with a service/interest rate.
In simple terms, invoice bill discounting is selling an invoice before its maturity date. As a result, the amount the business loan received through this bill finance solution is lower relative to the actual value of the invoice. It is important to note that the discount amount will depend on the maturity periods and the supposed risk of the invoice involved.
How Does Bill Discounting In India Work?
The following are four steps in the process of invoice discounting in India.
Step 1: Selling Goods
The process of bill discounting involves selling the products or services to the customer.
Step 2: Raising An Invoice
The next step is to raise an invoice for the buyer to pay within a specified time, typically between 30 to 120 days.
Step 3: Using Invoice Discounting
The financing company will give the business cash against its invoice after subtracting a small fee.
Step 4: Collecting The Payment
The last stage of the bill discounting process is collecting the payment for the invoice. Here, The buyer/customer pays the business as per the amount raised for the invoice. The business will then repay the financing company. Alternatively, the business can delegate the responsibility of collecting funds from the buyer to the financing company.
Four Ways How Bill Discounting Can Help Small Businesses
1. No Collateral Requirement for Secure Funding
Bill discounting solutions doesn’t require securing a loan, making it easy for small businesses to get funding. Instead, the businesses will use their pending invoices to secure the funds. This online business loan option is less risky, meaning lenders are more likely to approve the funding request. The only cost the business will incur in invoice discounting in India is the service fee and interest the financer deducts after the invoice is settled.
2. Faster access to cash
Because of bill discounting’s reduced risk to lenders, it is quick for businesses to obtain funds. The requirements are not as stringent as for conventional loans, accelerating the approval process. It expedites cash flow, enabling the business to use the funds for the upcoming project, future growth, or payment of past-due debts.
3. Shortens collection period
Sometimes customers may delay paying, but with bill discounting, the duration it takes to collect invoices is shortened. Bill discounting reduces the collection period, immediately availing money for other business operations. In addition, cash held in invoices is easily converted into liquid cash without the business waiting for the maturity of the invoice.
4. Improves cash flow
Most small businesses don’t have the financial muscle to work on other orders with pending payments. When payments delay, SMEs can face cash flow problems as pressuring customers to pay can affect their relationship. In such a scenario, bill discounting solutions can help SMEs improve cash flow by providing a working capital loan against pending invoices.
Frequently Asked Questions
Q. What is bill discounting?
A. Bill discounting is a business finance solution in which a business can use its pending invoices to secure funding before the due date at a discount. This enables the business to receive a portion of the bills owed to them immediately rather than waiting for the due date.
Q. What types of bills can be discounted?
A. Most bills payable at a future date can be discounted, including trade bills, commercial bills, and invoices.
Q. Who can use bill discounting solutions?
A. Bill discounting solutions are typically used by small and medium-sized businesses with a steady flow of invoices or bills but need immediate access to cash.