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23 Jun
  • Editorial Team
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In the world SMEs (Small & Medium Enterprises), the one thing that businessmen dread the most is a cash crunch caused due to delayed payments from their clients. The cause of concern does not pertain to receiving these payments, instead it's related to when these payments are received. A delayed payment may prevent a business owner from taking a new order due to lack of working capital. To overcome this issue, businessmen explore bill or invoice discounting options, which are the quickest way to monetize a payment expected in the future. This type of loan allows payments to take place without disturbing the cash cycle as bill discounting allows SMEs to take loans against bills or invoices raised, thereby allowing businesses to run smoothly.

Advantages of Bill or Invoice Discounting

In addition to getting almost instant financing, these types of loans offer several other benefits such as:

  1. Ease of effortless withdrawals

  2. Easy authentication

  3. Shorter repayment tenure

  4. Borrower is obliged to pay only for the used amount (unlike any other loan)

  5. Strengthened cash flow

  6. Quick processing

  7. Hassle-free experience

Difference between Bill & Invoice Discounting

Bill and invoice discounting are meant to bridge the gap created by late realisation of invoiced payments. While invoice discounting is meant to take a loan only against the unpaid invoices up to next 90 days, bill discounting is set up against all 'bills of exchange', and can be used to take a loan for bills due from 30 days to 120 days.

How does Bill or Invoice Discounting work?

While bill/invoice discounting can be used to take loan up to 90% of the invoices raised, it is important to understand how this product works:

  1. A business raises an invoice against a reputed client, for instance a blue-chip company (or any other big enterprise) for the services and/or goods supplied.

  2. The payment is not made immediately, and hence to bridge the time gap between the date of raising the invoice and date of payment, the providing business uses its bill or invoice for discounting, through a company like Hero FinCorp.

  3. The processing time is 1-2 days, and the amount is disbursed the business which is discounting its bill or invoice. The tenure ranges from 30 to 120 days.

  4. Such loans allow a business to tide over long repayment cycles and continue to take new clients. Alternatively, if the cash requirement is met through a different source, then the business can save on interest costs by repaying the loan amount to the Invoice Discounting Service Provider.

 

Bill or invoice discounting is a great way to manage working capital needs and ensure smooth functioning of one's business. It's especially useful for smaller companies such as MSMEs or SMEs which may not have sufficient cash reserves.

Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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