All You Need To Know About Invoice Discounting In India
Invoice discounting is a popular and easy way through which business owners can get access to capital to meet the operating expenses. It is considered one of the most common forms of financing that gives you access to short term business loan. If you sell goods on credit or offer services on credit, you can use the unpaid invoices to get funds. Invoice discounting in India is a very simple and hassle-free way of getting funds for the business. Here is all you need to know about it.
What is invoice discounting?
Through invoice discounting, you can leverage the receivables to get access to funds for the short term requirements. It works on a simple principle where you sell the unpaid invoices to lenders and get a percentage of the invoice value as a cash advance. The amount of funds you avail through the process can be used for the growth and expansion of the business. It will increase operational efficiency and will help achieve short term goals. Your customers will not be aware of the borrowing and they will make the payment when it is due.
Process of invoice discounting
Here is a step by step process of discounting the invoice.
• You prepare invoices against the goods or services you sell to the customers.
• The details of the invoice will be given to the lender.
• You will receive funds against a specific percentage of the total value of the invoice.
• Whenever the customer makes a payment against the invoice, the balance amount will be forwarded to the you after the deduction of the service fee.
Usage of the funds
When you use invoice discounting, you are free to use the funds for any short term needs in the business. You can use them to repay debts, bills, or undertake expansion plans. You need to remember that the amount of funds you receive will be dependent on the invoice value. Hence, choose the invoice very carefully.
Is it right for you?
Considering the various financing options available in the market, it can become difficult to decide if invoice discounting is the right choice. You need to consider the minimal bad debt for the business, take effective credit control measures, consider whether your customers make the payment on time and if the business complies with these factors, invoice discounting in India will be highly beneficial for your business and you should go ahead with it. Keep the sales and credit period in mind when you approach a lender for discounting the invoices.
Invoice discounting can give immediate access to funds. It is a collateral-free borrowing that is suitable for all types of businesses in the industry. The process of discounting is simple and transparent. You only need to approach a lender with the invoice you want to discount. You will receive funds within no time. The lender will charge a service fee which is a percentage of the total invoice amount. This fee is for bearing the risk. You can enjoy various benefits with this method of borrowing like immediate disbursal of funds, basic eligibility criteria, and collateral- free access to funds.