What Is Bill Discounting And Why You Should Use It For Better Cash Flow

It is a well-known fact that most businesses run on payments that are based on the credit cycle rather than immediate payments. And this can often lead to a situation where you are yet to receive the payments from one fulfilled order (delays happen all the time), but you need to spend for another order. Naturally, this can affect your cash flow, your daily operations and the stability of your business. Fortunately, though, bill discounting you can resolve this issue.

So, find out what it is, how it can benefit your business, and why it is wise to avail this type of loan.

What is bill discounting?
The reason why bill discounting can improve cash flow is because it is a loan that financial institutions offer against payments that you expect to receive.Now, as you must be aware, most loans require you to pledge an asset as collateral or guarantee for repayment. But bill or invoice discounting loan requires you to pledge your invoices only.

To put it simply, through the invoices, you tell the lender that you will receive a certain payment after a number of days, and in the meantime, you need some capital. Consequently, the lender sanctions a loan amount and charges an interest rate for the period that passes until you repay the loan.

Also Read: Improve Cash Flows with Bill or Invoice Discounting

4 ways in which bill discounting facility benefits your business

1. Your cash flow gets a boost – If you are wondering how to improve cash flow quickly and easily, bill or invoice discounting is your best bet. After all, it converts your invoices into money, even if your client delays the actual payment. This way, you will not need to ask family members or friends for cash or dip into your emergency fund.

 

2. You get to manage invoices better –Not only do you receive a quick loan with invoice discounting, but you also end up updating and managing your invoices better. This will be helpful later, when you have to pay taxes.

 

3. It becomes easy to grow your business –Bill discounting is one of the best ways to improve cash flow, which means you will always have the funds you need to run your business smoothly and even expand it without worrying about payments from customers.

 

4. Customers will trust you more–When customers realise that they have more time to make payments and you are not dependent on that cash to carry out daily operations, they will trust you more. It might bring you new customers as well.

Also Read: Why invoice discounting is great way to improve cash flow for SMEs

Reasons to avail bill discounting loan
Since the bill discounting procedure is fast and financial institutions disburse the funds even within a few hours if required, you can go for it if you need money urgently. Since the documentation involved is minimal, very little time gets wasted.

Also, you do not need to pledge any asset as collateral, as the loan is disbursed against your invoices. So, in case you cannot repay, there is no risk of the lender repossessing your asset or selling it. However, non-repayment of the loan can hurt your business’s image and push up the interest rate charged.

Also Read: Invoice Discounting: Is It Right For Your Business

Are you eligible for bill discounting?

To avail this loan, the following things need to be in place:

• The payment and the contract must be endorsed by you and your customer and must be recorded in writing
• The concerned customer should have raised a purchase order against the sales order
• You should have delivered the goods (as per the order) to the customer successfully
• You must have raised an invoice and the customer must have approved it, but the payment is yet to come
• The customer must have promised a particular date for clearing the outstanding payment

To conclude
All in all, bill discounting is an efficient, quick, and easy way to keep your business’s cash flow positive and even enhance its growth. As it is unsecured or collateral-free, your assets will not be on the line in the unfortunate case of non-repayment. However, you should exercise caution and assess your pending payments along with timelines to ensure that you can repay the loan and improve your credit score.