Cash is king.
It’s perhaps an expression you would have heard of if you’re running a business. Ever wondered what it signifies? In simple terms, it denotes the importance of hard cash, and tells us more about how sufficient cash flow at all times, takes precedence over registering sales and profits on paper.
Why’s that? Because any enterprise, irrespective of its size, can struggle to grow or even survive if there is a dearth of sufficient funds to undertake operations that pave the road to future earnings. And one of the most prevalent issues that plague adequate cash flow is the mounting of unpaid bills.
Bill discounting particularly addresses this concern by enabling businesses to make the most out of their resources and chart the way to growth and success.
What Is Bill Discounting?
Whenever you sell or supply products on credit to a customer, you draw up a corresponding invoice, mentioning the payable amount and date of repayment. Let’s say, you have issued an invoice to customer A, which is payable within 90 days from the date of receipt. However, you’re cash strapped by the 50th day, and all your funds are tied up for another 40 days.
What’s the Way Out?
In that case, you can discount your unsettled bills with a financial institution to release those funds in advance, and mitigate your cash crisis easily. Through the bill discounting facility, you will receive a discounted amount against the total invoice value, which is usually to the tune of 10%.
So, if you have Rs. 10 lakh worth of funds tied up in unpaid invoices, you can receive Rs. 9 lakh as an advance via this facility. However, note that the discount percentage shall vary based on your business’s eligibility, which depends on various factors such as your annual turnover, yours and client’s credit rating, etc.
How Does Bill Discounting Work?
In case you are wondering how to avail this credit facility, here’s a look at the steps usually involved.
|Lender||Select a lender with whom you want to discount the invoices.|
|Submit bills||If you are applying for this facility online, you need to provide the scanned copies of original invoices, along with necessary documents about you and your business.|
|Verification||The financier checks the veracity of every document and invoice.|
|Approval and disbursal||Once verified, the invoices will be purchased at a discounted rate.|
|Collection||Following that, you need to collect the outstanding amount from the clients and subsequently forward the loan quantum plus a service fee to such financier.|
Note – Verification and approval tend to vary with every financial institution. In some cases, you might have to register with a lender first and then get verified to carry out further proceedings..
How Can Your Business Benefit From Bill Discounting?
Proper Working Capital Management
For starters, with sufficient working capital, you can have seamless productivity, on-time supplier payments, and free-flow of warehouse rents. All these factors are crucial in growing a business. However, unpaid bills can put a damper on proper management. With the bill discounting facility, you can ensure that the cash flow remains steady, despite such unsettled invoices.
Shortened Cash Cycle
From selling a product to receiving the revenues, it’s a long wait.
Meanwhile, you can undertake different additional projects, especially if you’re expanding your business operations. In that case, you can trim the cash cycle at your convenience by availing invoice discounting.
Business emergencies can be overwhelming, predominantly for small and medium enterprises. There might be an unprecedented demand for a product you sell owing to some external cause, which may require you to ramp up production. Waiting for bills to be repaid can cost you the competition. Instead, you can avail those funds within 1 – 3 days with bill discounting and gain an edge over your competitors.
With the emergence of digital financial solutions over the past few years, acquiring credit is now a hassle-free affair. More so with invoice discounting, you do not have to get involved in unnecessary lengthy approval and disbursal processes like that of business loans. If your company is registered with a financier, you can simply upload the unpaid bills and acquire funds against them in a few simple steps.
Financial institutions do not require any collateral when providing advances against unsettled bills. Hence, it simplifies the process of availing such a facility, as well as takes off the load on your company.
When you borrow a business loan, it’s recorded on your balance sheet as a liability. However, that’s not the case with bill discounting. You can streamline cash flow and expand your company without affecting the balance sheet in any way.
With such benefits and more, bill discounting has become one of the leading credit facilities through which businesses can maintain steady cash flow and facilitate smooth business operations.
Invoice discounting is an ideal financing solution for companies looking to manage their cash flow better, and bring more cohesiveness to repayment terms without impacting customer relationships. At the same time, it’s necessary to ensure you’re using this facility wisely by opting for it at the right time and with the best financier to optimise your benefits.