Vendor Payment Discounting
With lengthy payment cycles, vendors often find themselves caught up in a financial crunch. This is especially true for vendors that supply to large-scale corporations since they have extensive quality and quantity checking processes, and cash cycles.
Resultantly, a narrowed cash inflow can slow down regular operations and hinder the productivity of a business, which ultimately, ends up hurting the capacity for revenue generation.
That’s why suppliers often opt for vendor payment discounting to expedite this process and efficiently finance regular business operations. With this financial agency, suppliers can free up the inflow of cash and also, resolve the issues of prolonged payment cycles.
What Is Vendor Payment Discounting?
It refers to the process of availing cash advance, against outstanding purchase orders. Vendors, in turn, pay a percentage of the invoice value as a service fee. Vendors can utilise their unpaid bills to raise working capital within 24 – 72 hours*with KredX .
This cash advance can be to address a variety of business expenses, be it ramping up production, costs of inventorying, or paying distributors. Apart from that, scaling of operations can also be financed with the vendor discounting service.
Thus, this financing solution lets suppliers manage their cash flow better, which in turn leads to an improved productivity and opportunity for growth.
How Does Vendor Payment Discounting Work?
Suppliers can avail the vendor bill discounting service online with the following steps:
- The vendor submits the invoices on the financier’s portal.
- The financier verifies the credibility of those bills, and also checks the creditworthiness of the customer(s).
- After due verification, such invoices will be listed on the portal from where investors can buy them.
- Following that, the amount is advanced to the vendor at a discounted rate, which is usually 85% - 90%.
- The vendor’s credit controller carries out payment collection.
- When the vendor receives payment from a customer(s) on the due date, it forwards that amount to the investors via that discounting platform.
What Are The Advantages Of Vendor Payment Discounting?
This financial service offers several advantages to vendors. Such as –
Through vendor payment discounting service, suppliers can shorten their cash cycle, which is the period from the manufacturing of goods to the reception of payments. A shortened cycle allows vendors to maintain steady working capital that is conducive to smooth operations.
- Resolves Cash Flow Issues
Small vendors often run into cash flow issues owing to prolonged payment cycles. Expenses keep on piling while cash inflow remains tied up, in various unsettled purchase orders. With the invoice discounting service from KredX to get quick access to working capital. It frees the held-up income, and lets a vendor optimise its cash flow.
Quick disbursal of funds is one of the primary advantages of this financing vehicle. Vendor payment discounting only requires 1 – 3 days for disbursal, whereas tradfitional bank loans take somewhere around 3 – 7 days. Hence, this facility is considerably more convenient in addressing financial emergencies.
Undertaking new orders, especially those with massive volumes, becomes a challenging prospect for vendors with prolonged payment cycles. Such working capital issues are a significant deterrent of growth and can cost a supplier their competitive edge. Through this discounting service, however, vendors can access funds early and finance new orders easily.
Nevertheless, a vendor should thoroughly go through the terms of this discounting service before availing it to ensure that they can derive the maximum value.
It can be said that a bill of exchange proves useful in more ways than one. The fact it helps to combat the risks associated with exports make it a viable instrument for both the importers and exporters. Regardless, to make the most of its benefits, individuals need to become familiar with its terms of usage.
A. In the former case, confidentiality is maintained, and debtors do not know that their unpaid bills are being discounted. In the latter case, the financier assumes credit control, hence debtors are made aware of such an agreement.
A. Primarily, there are two types of bill discounting services – selective discounting and whole discounting. The former involves leveraging only select bills to avail working capital solutions. In the latter case, a supplier sells its entire accounts receivables to raise funds irrespective of its requirements.
A. No, vendor payment discounting does not appear in a company’s balance sheet. That’s because it’s simply a process of receiving payments on outstanding invoices early on.
A. If a company has lengthy cash cycles and a considerable sum tied up in outstanding bills, vendor payment discounting can be an excellent financing option.
A. Usually, financiers provide up to 85% of the invoice value as a cash advance. However, the actual amount that a company can avail depends on their eligibility.
A. Businesses can repay the cash advance acquired via this financing option, within 90 days. Hence, it serves businesses with extensive cash cycles adequately.