These platforms list the unpaid invoices of businesses needing a liquidity boost - after conducting a comprehensive background check about the legitimacy of these enterprises. Then, as an investor, you can pay off the invoice amount and solve the cash crunch issue of the small business in question. Down the line, you can earn up to a 20% return rate against this short-term investment within 30-90 days.

What Is Invoice Discounting?

When a business provides a product or service to its customer, it raises an invoice against it. This invoice is a legally binding document that contains the amount a seller owes from its customer. Notably, a customer has a prolonged window to reimburse the seller after this official request for payment is raised.

Cash tangled up in these accounts receivables can be an obstacle to the optimal functioning capabilities of a business, especially if it falls under the MSME sector of India. Despite providing employment to a larger chunk of the country’s population and contributing significantly to the GDP, the small business sector in India still struggles to get proper funding due to its lack of access to formal credit.

As small businesses do not have collateral or assets, traditional institutional lenders often consider these enterprises high-risk borrowers. Therefore, these SMEs do not have an unrestrained cash flow quintessential to keep a business afloat. So, if they face a cash crunch due to unpaid invoices, these businesses can struggle to meet their basic needs, like buying raw materials or paying the employees.

The invoice discounting platforms in India have a flexible framework that allows many businesses to be eligible for the service. These SMEs can leverage their unpaid invoices to receive a working capital boost from the investors. This way, they can continue their business functions without affecting the ledger or balance sheets. Therefore, these enterprises are looking for alternative financing options.

Role Of Investors In Invoice Discounting

As an investor, you need to pay a discounted amount of the total invoice upfront. Moreover, the fintech platforms offer you fiscal independence in letting you decide how much of the invoice you want to pay off at once.

As you are guaranteed to get their investment after a determined time, you can rest assured about earning a considerable profit over this short-term investment. Moreover, due to the thorough background check of every enrolled borrower, the invoice discounting platforms can significantly mitigate the risk factors involved.

Why Opt For Invoice Discounting?

There are several benefits if you are opting for accounts receivables investments, such as:

• Portfolio Diversification
  Investing in invoice discounting allows you the scope of portfolio diversification. As this investment tool does not require high-risk tolerance and can earn comparatively higher returns, your complete portfolio will not witness a downturn even if a set of asset classes underperform.
• Profitable In A Bear Market
  In general, alternative investments tend to outperform stocks and bonds if the market is expecting inflation. As they do not have an immediate correlation to the volatile mood of the market, the ups and downs don’t significantly impact the return rates. As a result, the investors might not sustain a heavy loss during a market crash.

How To Invest In Invoice Discounting?

Online invoice discounting platforms in India conduct the entire investment procedure digitally. Therefore, you can sign up for their services online with ease in order to become an investor. Later on, you will need to complete a thorough documentation process to fulfil the KYC procedure.

Subsequently, you have the scope of selecting the listed invoice you want to invest your money with just a click. After the maturity period of the investment, these service providers transfer your returns directly to your bank account. Note that as a financier, you will automatically get paid once the customer of the borrower business pays the due invoice amount.