How Bill Discounting Can Be a Game-Changer For Your Business, Smarter Alternative to Unsecured Business Loans
In today’s dynamic business environment, cash flow management remains one of the key issues for any company, mainly small and medium enterprises. Working capital will further play a vital role in continuing operations, financing growth, and seizing new opportunities. While unsecured business loans have turned out to be one of the major options for most of them, bill discounting is often an underutilised financial tool that might prove to be a revelation.
Understanding Bill Discounting
Bill discounting, or invoice discounting, refers to a financial facility wherein an enterprise receives instant cash against its outstanding bills by selling the same to a financial institution at a discount. This helps the company realise the receivables before the due date and advances the much-needed liquidity to manage the operations.
Whereas unsecured business loans are extended to businesses without collateral, Invoice discounting makes use of pre-existing assets, such as invoices, to create cash flow. The process will be much quicker and in tune with the organic cycle of cash flow generation in a business.
Why Bill Discounting is Smarter than Unsecured Business Loans
Quicker access to cash is probably the main advantage that Invoice discounting has over unsecured business loans. In general, unsecured business loans require a long and time-consuming approval process, credit checks, and heaps of paperwork. Invoice discounting enables companies to immediately turn over receivables into liquid cash and, therefore, always maintain the liquidity required for meeting short-term financial obligations.
No Accumulation of Debt: Bill discounting, unlike unsecured business loans, does not add to the debt burden a company might be carrying. Since the company is selling an already existing asset, that is, an invoice, the transaction itself does not appear as a liability on the books of the company. It keeps the financials of the company healthier and more attractive to investors or other lenders.
Liquidity Management: Effective cash flow management is always critical to the survivability of a business. Through Invoice discounting, as compared to unsecured business loans, businesses can match their cash inflows with the operation requirement. In this regard, they will have ample funds to pay for the supplier, employees, and other liabilities without waiting for customers to pay the bills.
Cost-Effective Financing: Bill discounting can be more cost-effective than unsecured business loans. The cost associated with Invoice discounting is a discount on invoice value, generally at rates lower than interest rates offered by unsecured business loans. This has made it a popular financing option, especially for organisations with high-value invoices and reliable customers.
It minimises risk. Unsecured business loans are riskier for lenders, and due to that fact, the interest rates could be higher, and the terms of repayment may not be that friendly. Invoicing or Invoice discounting avoids this risk because the bills serve as collateral for the deal. This reduces the financial risks for both the lender and the business and, hence, results in better financing terms.
Real-time statistics on bill discounting in India
In recent years, Invoice discounting has found considerable momentum in India among SMEs. In this regard, the value of bills discounted by commercial banks in India has increased by 15% this year over the previous year, according to the report provided by the RBI. This is indicative of increased awareness and acceptance of Invoice discounting as one of the alternatives to unsecured business loans.
Data from TReDS, the Trade Receivables Discounting System set up by the RBI to enable financing of trade receivables of MSMEs, shows a YoY growth of 20% in the volume of invoices discounted. Such a growth indicates a strong preference for Invoice discounting by businesses seeking access to working capital in a quick and efficient manner.
The growth in bill discounting is not limited to old traditional banks. Fintech companies like KredX have been at the forefront, introducing innovative bill discounting solutions and making it easier for businesses to unlock the value of their invoices. For instance, KredX said the number of businesses using its platform for bill discounting increased by 25% in the last financial year.
The KredX Advantage: Simplifying Bill Discounting
Some of the leading invoice discounting platforms in India include KredX, which truly helps enable seamless access to working capital for businesses. The platform allows businesses to connect with a network of investors for the purpose of discounting invoices competitively. With KredX, businesses can cut through the long approval processes usually associated with unsecured business loans and secure funding in as little as 24-72 hours.
Moreover, management for any business becomes easier through the transparent and user-friendly KredX platform. The advanced analytics and tracking tools on the site guarantee a real-time update on the status of the discounted invoice so as to plan for cash flow better and make appropriate adjustments accordingly.
When Should You Consider Unsecured Business Loans?
While bill discounting has a lot of advantages, there are many situations where an unsecured business loan could be a better option. For example, if your business does not generate a high volume of receivables, or if the invoices you hold are not from high-credit customers, then an unsecured business loan may be in order.
Unsecured business loans are also suitable for businesses that have to invest in a long-term growth initiative, such as expanding operations, buying new equipment, or launching a new product line. For those instances, the higher loan amount accorded to unsecured business loans can be availed of.
Conclusion: Choosing the Right Financial Tool for Your Business
Both bill discounting and unsecured business loans have a place in the financial toolkit of a business. However, for businesses looking to quick, inexpensive, and low-risk financing options, Invoice discounting is rather a wiser alternative. You can unlock the value in your invoices to access the funds you need to keep your business running smoothly without increasing the weight of debt.
Cash flow is at the very heart of driving your business towards success through expansion or sustenance. At KredX, we know that and hence have crafted bill discounting solutions for you to avail yourself of liquidity exactly when you need it. Whether it be to run day-to-day operations or to fund a new growth opportunity, we at KredX are there to support you in whatever possible way.
Take control of your cash flow and learn more about bill discounting on KredX today. Our expert team is in place to guide one through the process and unlock a business’s full potential. Don’t wait. Start with KredX today and find out how bill discounting may turn your business around.
