A bill discounting loan is a short-term loan against a company’s unpaid bills & invoices which provides immediate funds for the company’s various requirements like purchasing raw materials or working capital for daily activities. Instead of waiting for 30 to 90 days for your customers to pay, you can get immediate funds through this loan.
This loan can be raised within 48-72 hours. The new lender will purchase unpaid bills from the company and provide a short-term loan for two to three months. The lender will then directly collect the bill amount to their account from the bill issuer company on the actual date of the bill.
Bill discounting are suitable for companies or businesses having long payment terms or companies with rapid growth that need to manage cash flow more effectively. It is commonly used in industries such as manufacturing, traders, and services dealing with big corporates, where large invoices and extended credit terms are common.
How Does It Work?
- Submission of Invoices/Bills: The company needs to submit its unpaid invoices/bills to the invoice discounting lender and the assignment of the invoices is done.
- Advance Payment: The lender advances a percentage of the invoice value, often around 80-90%.
- Collection of Payment: The company collects the payment from the customer as usual or the invoice amount is directly credited to the lending company account.
- Final Settlement: The company receives the remaining balance minus the provider’s fees once the customer pays the invoice.
Features of Bill Discounting
This is a good way to help manage cash flow and get ahead on bills, but there are some essential features to look out for when choosing a loan.
- Immediate Access to Funds: It provides businesses with quick liquidity by converting unpaid invoices into cash
- Short-Term Financing: This is typically a short-term financing option, lasting from a few weeks to several months, aligning with the credit terms of the invoices
- No Additional Collateral Required: This loan doesn’t require additional collateral. The unpaid invoices serve as the collateral, making it a simpler financing solution.
- Flexible Terms: Companies can discount individual or multiple invoices at once, offering flexibility based on their immediate financial needs.
- Cost-Effective Solution: It typically comes with lower interest rates compared to other forms of short-term loans, making it a cost-effective option for businesses
Documents Required
- Company Profile
- Last three years’ Balance Sheets
- Sanction Letter of all running loans
- GST Registration
- Company & Promoter KYC
- Invoices to be discounted
Benefits of Bill Discounting
Immediate Funds
Gain immediate funds to cover operational expenses to purchase raw materials to earn better profit.
Flexibility
Flexibility in discounting one bill or multiple bills at the same time.
Low ROI
The interest rate is generally meager, so it will be easy on your pocket.
No Additional Debt Liability
It does not increase your company’s debt profile, as it is based on your receivables. It provides a way to manage cash flow without additional liabilities.
Who Are Eligible for Bill Discounting Loan?
- Any Proprietorship/Partnership firm and Pvt Ltd/Ltd company
- Bills of high net-worth companies
- An annual turnover of Rs.5 crores or above
- Companies having credit issues are also eligible
Avoid common mistakes
- Lack of Due Diligence on Customers
- Not Reading the Terms and Conditions
- Discounting Invoices with Poor Margins
- Incorrect Invoice Documentation
- Ignoring the Impact of Late Payments
- Using this for the SME company Invoices
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Is my company eligible for a bill discounting loan?
If your company is profit making in the last three years and working for good-reputed companies, then you are eligible for this product.
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How much does bill discounting cost?
Charges may vary on the invoice value and the duration of the advance. Generally, it is a low-cost financing tool.
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How quickly can I access funds?
Once approved, you can access funds within 72 hours of submitting your invoices.
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Will my customers know I am using a bill discounting loan?
No, the process is confidential, and your customers continue to deal with you directly.
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What kind of bills are eligible for bill discounting loans?
If bills issued by good-reputed companies, then they are eligible for bill discounting.
