Invoice discounting is probably the easiest way through which business owners can avail sufficient capital to meet various operating expenses. It is one of the simplest types of financing that allows individuals to avail a short-term business loan by utilising their unpaid invoices. Read More

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Fundamentally, an invoice is a time-specified commercial document issued by businesses to their customers and specifies the cost of goods or services that must be paid as per the payment terms. Read More

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Invoice discounting is probably the easiest way through which business owners can avail sufficient capital to meet various operating expenses. Read More

In recent times, invoice financing has gained popularity owing to reasons like instant availability of collateral-free funding and hassle-free application process. Read More

Working capital is one of the most crucial components for ensuring a smooth operation of any business. It is regarded as a useful financial tool that gives a fair idea about a business’ short-term financial standing. Read More

Most businesses provide credit facilities to their customers to boost sales and build brand loyalty. However, the issue arises when a significant amount of money is stuck in bills receivable Read More

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KredX is India’s leading integrated cash flow solutions provider, enabling MSMSEs to gain access to collateral-free working capital, thereby leading to business growth and expansion. Read More

CIBIL Score, now known as TransUnion CIBIL Score, is an individual’s credit score which is calculated based on his or her credit history such as loan and credit card payments. CIBIL Score is a 3-digit numeric representation of a person’s past credit behaviour. Read More

Growth and expansion of a business are essential for sustainability and profitability. Small businesses, however, may not have the sufficient funds to meet their growth and operational objectives. Read More

Factors like the relation between a buyer and a seller, economic conditions, nature of transactions, national and international trade, etc. often decide the fate of trading. If there is discord among any of these factors, traders are likely to incur a loss unless they have financial security like a Letter of Credit or LC discounting to fall back on. Read More

Lack of substantial capital, inadequate infrastructure, and obsolete technology are among the primary issues that hamper businesses’ profit-generating capacity. Quick access to funds thus helps business entities to tackle these issues effectively for streamlined operations. Read More

The formula for calculating working capital need is:

Working capital = Current Assets – Current Liabilities

Working capital is the capital of a business which is used in its everyday trading operation. Working capital needs can be determined by using the formula Working capital = Current Assets – Current Liabilities

This formula informs us about the short-term, liquid assets which are left over after paying off the short-term liabilities. It is a measure of an organisation's short-term liquidity and crucial for performing financial analysis, financial modelling, and managing cash flow. 

Current Assets:

Working capital solutions involve equity, trade creditors, line of credit, short term loan, and invoice discounting. 

The total amount by which current assets exceed current financial liabilities is called working capital. To identify the working capital needs, one must first analyse the operating cycle. The operating cycle checks the accounts receivable, accounts payable and fulfilment cycle in terms of days. This means: 

• The average number of days which are taken to collect payment from customers is used to analyse accounts receivable.
• The average number of days which are taken to pay a supplier invoice is used to analyse accounts payable. 
• The average number of days involved in delivering products or services sold to a customer is used to analyse fulfilment

In case, a business is experiencing a shortage of working capital, the following solutions can be chosen

• Equity: When startups in their initial year of operations fail to earn profits, then they might be able to rely on equity funds as a short-term working capital solution. These funds can be obtained from their personal resources like a family member, friend or a third-party. 
• Trade Creditors: Temporary working capital can be obtained if solid relationships are maintained with the trade creditors. To maintain good relations with trade creditors, it is important to have a consistent history of on-time payments.
• Invoice Discounting: Invoice discounting is another suitable option for new and established businesses who are looking for working capital financing. In this, a company raises a request for capital against the unpaid invoices. The process is speedy and convenient. Since quick access to money is given, companies are in a better position to pay on a timely basis to other companies.
• Line of Credit: A company qualifies for a line of credit loan if it has equity and good collateral as this allows the company to borrow funds for short-term needs when needed. Line-of-credit loans usually offer the lowest interest rate a bank offers as they are seen as fairly low risk. They are taken for the purpose of payment of operating costs for working capital, inventory purchases, and business operation needs. However, new businesses often don’t get a line of credit loans.
• Short term loan: If a new business is not eligible for a line of credit loan from a bank, they can go for a short-term loan. However, this type of loan can be very costly, which in turn will keep the business locked in a debt cycle for a very long time.

Invoice Discounting or bill discounting is an alternative financing solution for companies which provides working capital finance by using the value of their unpaid invoices. 

The practice of using a company's unpaid account receivables as collateral for a loan and issued by a finance company is called invoice discounting. The period of the loan is very short since the company which has given the loan can change the amount of debt outstanding as soon as the number of accounts receivable collateral changes. The amount of money issued against the unpaid invoices is less than the actual amount of invoice (typically 80% of all invoices less than 90 days old). (Read more)

Small businesses either provide services or products to big corporates and are in need of working capital after every few cycles. Often the question that pops up is how does invoice discounting facility work? These small businesses thus form an integral part of Supply Chain for big corporates. Once the goods or services are supplied, these small businesses raise invoices to receive payments for their services and goods. These invoices are then sent for approval to the big corporates. Once approved and verified, the small business receives payment. This entire process can take anywhere between 30-120 days which means that businesses are devoid of their money for a long time, affecting their financial health.This is the process of bill discounting. 

1. Small Business raises Invoices against the Big Corporate (Enterprise/Blue-chip Company) for the services provided/goods supplied.
2. To avoid the delay, they can bring their invoices to Invoice Discounting companies such as KredX for confidential invoice discounting.
3. In 1-2 days, these invoices are converted into cash and transferred to small businesses at a pre-set discounting rate and tenure (normally ranging from 30-120 days).
4. Small Business completes multiple business cycles in this tenure and upon release of payment from corporate, repays the Invoice Discounting Service Provider.

Discounting invoices hence provide businesses funds upfront rather than waiting for 30-120 days. The completion of multiple business cycles further helps in improving cash flow and increasing revenue rather than limiting operations due to lack of funds. (read more)

A few invoice discounting platforms in India that you can choose to liquidate your invoice are RXIL, Invoice Mart, M1 TreDs, KredX, Flexiloans, and Priority Vendor.

Some of the popular invoice discounting platforms in India are:

• • RXIL: Receivables Exchange of India Ltd (RXIL) is a joint venture between National Stock Exchange (NSE) and Small Industries Development Bank of India (SIDBI). It went live in January 2017. As per RXIL’s website, their primary objective is to act as a catalyst to achieve the entrepreneurial growth, economic success and financial stability of SMEs. 
  • Invoice Mart: It is a joint venture between Mi Junction and Axis Bank and the platform is marketed by ATReDS. This platform connects the corporates, the SMEs (sellers), and financiers who usually bank on an e-platform. Based on the factoring option of discounting, Invoicemart platform seamlessly integrates with the buyers' existing ERP systems, enabling them to streamline their payments to their vendors. Launched in July, the platform has already seen invoice exchange worth INR 100 crore.

• M1 TreDs: Mynd Solution which is a business process and technology management company is managing the TreDs Platform. They provide services in accounting, finance, information technology, consulting domain, and human resource outsourcing. 

Unlike the TreDs platform, M1 is into reverse factoring apart from receivables factoring leading to higher transaction volumes flowing into the system and promoting better pricing.

The three companies who have received permission from the Reserve Bank of India to run the TreDs platform are IDBI, AXIS Bank, and Mynd Solutions. 

• KredX: KredX is an online invoice discounting platform where business owners get an opportunity to raise funds for their working capital needs at attractive terms by selling their unpaid invoices raised on blue-chip companies. KredX aims to remove operational inefficiencies around the invoice discounting space by extensively using technology and its data analytics and credit underwriting capabilities.
• Flexiloans: FlexiLoans is a lender where the platform discounts bill through their lending product called Flexi Vendor Financing. The company has a set of mentioned guidelines to lessen its risk. For instance, any company looking to get a loan from Flexiloans needs to be around a year old and should have a turnover of INR 20 lakh.
• Priority Vendor: The cloud-based platform uses Artificial Intelligence to discount the bill. This platform is accessible only ‘by invitation’. Priority Vendor includes those who have tied up with companies like Whirlpool, Dabur, TVS,  Godrej Consumer Goods, among others.

“Invoice discounting is the practice of using a company's unpaid accounts receivable as collateral for a loan, which is issued by a finance company. This is an extremely short-term form of borrowing since the finance company can alter the amount of debt outstanding as soon as the amount of accounts receivable collateral changes. The amount of debt issued by the finance company is less than the total amount of outstanding receivables (typically 80% of all invoices less than 90 days old). The finance company is generally not more selective than simply allowing a percentage of all invoices outstanding, thereby relying on a spread of receivables among many customers to keep from losing collateral.”

Invoice discounting is the practice of using a company's unpaid invoices to raise working capital and fulfil its financial needs. Traditionally, financial institutions including banks and NBFCs have been discounting invoices for MSMEs. Invoice discounting involves the transfer of rights on an asset (invoice) from the seller (i.e. business) to the financier (i.e. investor) at an agreed value. (Read more)

The need for working capital for a small to medium scale enterprise depends on factors like lengths of operation cycles, sales, nature of the business, terms of credits, turnover of inventories, nature of productional technologies, seasonal variations, and contingencies. 

The total amount by which current assets exceed current financial liabilities is called working capital. The formula to calculate working capital is Working capital = Current Assets – Current Liabilities. The need for working capital in a small or medium enterprise can be identified by the following factors:

1.) Sales: Size of sales is one of the most important factors as compared to others to determine the amount of working capital required. The enterprise needs to maintain the current assets of the company to increase the volume of sales in the company. 

2.)  Length of the Operating Cycle:  ‘Length of operating cycle’ is the conversion of cash through various stages like raw material, semi-processed goods, the final product, sales, debtors, and bills receivables into cash over a period of time.

3.) Nature of Business: The need for working capital also varies from company to company depending upon the nature of the business. For example, manufacturing companies require less working capital than trading companies. The reason behind this is that a trading company requires massive quantities of goods to be held in stock along with carrying large amounts of working capital than concerns about manufacturing. 

4.) Terms of Credit: The term of credit allowed to the customer is another significant factor in determining the amount of working capital required. For example, a company may provide only 15 days credit whereas another company may allow a credit of 90 days to its customers. There can be cases where an organisation provides credit only to reliable and selected customers or, there can be an organisation which extends credit facility to all its customers. 

5.) Seasonal Variations: For those enterprises whose business depends on the season may need more working capital to meet their increased operations in a particular season. One such example would be sugar factories whose business are very seasonal. 

6.) Turnover of Inventories: When the turnover for large inventories is slow, a company needs more working capital. On the other hand, if inventories are small but still have a quick turnover, the amount of working capital needed by the company will be small in size. 

7.) Nature of Production Technology: If technology is labour intensive then the entire unit will need more working capital as the company will have to pay the wages to everyone. If a production company has a technology which uses more bots, the expenses of wages are cut down resulting in a lesser amount of working capital. 

8.) Contingencies: If there is a fluctuation in the demand and price of a product of a small-scale enterprise, the contingency provisions will have to be made for meeting the fluctuations. This will result in an increased requirement of working capital. 

Keeping a close eye on the above factors can also help you reduce working capital needs.

Invoice discounting and factoring are two financial terms which are often confused with each other. Now, the question remains that how is factoring different from bill discounting? Factoring and Invoice Discounting, both are financial services which can clear the funds bound in your unpaid invoices, including a provider who accepts to furnish money towards outstanding debtor balances. With factoring, the role of managing the sales ledger, credit control, and tracking customers for settlement of their invoices is done by the provider. Whereas with invoice discounting, a business maintains control of its own sales ledger and pursues payment in the usual way.

Invoice discounting and factoring are financial assistance which helps in getting those funds which are bound in an unpaid invoice, including a provider who accepts to provide money towards outstanding debtor balances. Following are the differences between invoice discounting and factoring which will help us answer question like how is factoring different from bill discounting?

• With invoice discounting, a business maintains control of its own sales ledger and pursues payment in the usual way. Whereas, with factoring, the provider takes up the role of managing credit controls, tracking customers for settlement of their invoices and managing the sales ledger.
• Customers are more aware of the factoring arrangements as factoring enables the customers to settle their bills directly with the factoring company. With invoice discounting, clients pay directly without the need for them to know about a third party involvement.

A person sends out invoices daily as and when their work is completed. Once the lender has received the copy of the invoice, a pre-agreed proportion of each invoice is deposited to the bank account. This money can then be used for various things like paying bills, repaying debt, or as part of a long-term plan for growth.

For a successful invoice discounting, it is vital to send out the invoices immediately after the work has been completed as it enables a continuous influx of cash throughout the month. On getting paid the agreed percentage of each invoice which is usually around 80% to 90% of the total, one can collect the payment from their client as usual. 

Charges and regular fees are deducted from the outstanding balance and are claimed by the lender. The fee and the charges should be transparent, and the structure should be made clear by the financier along with all other invoice discounting terms.

A confidential Invoice Discounting Facility is a kind of invoice finance that can increase a company's cash flow by releasing funds from outstanding bills for immediate use. This facility is confidential which means that the debtors aren't informed about such an agreement. This is a swift solution for those businesses which invoice other businesses in arrears.

Invoice financing is a method for businesses to borrow money against the amounts due from the clients. It helps businesses to increase their cash flow, pay employees and suppliers, and reinvest in operations and growth before they could if they had to wait until their clients paid their balances entirely. Businesses pay a certain percentage of the bill amount to the lender as a fee for borrowing the money. Invoice financing can resolve difficulties connected with customers taking a long time to pay problems obtaining other types of business credit.

Debt factoring is a financial arrangement where a factoring organisation takes charge of collecting money relating to a company's invoice and quickly pays that business part of the total amount owed on the bills.

In case the drawer of the bill does not want to abide until the scheduled date of the bill and requires money, the bill can be sold to the bank by the drawer at a discounted rate. The bill will be endorsed by the drawer which will contain a date and sign to pay the bank. The bank will pay cash to the drawer corresponding to the face value minus the interest or discount at an agreed rate for the number of days it has to run after receiving the bill. This is known as discounting of a bill of exchange.

The best factoring companies are :

• Paragon Financial Group
• BlueVine 
• TCI Business  Capital
• Payability 
• altLine
• Harper Partners

Collecting payments for small businesses with some of the best competitive discount rates in the industry is what the following companies have mastered. 

• • Paragon Financial Group: This is the best overall factoring company for businesses that want non recourse factoring from $25000 to $10 million.

• BlueVine: This company helps small businesses which needs invoice factoring quickly ranging from $5000 to $5 million.

• TCI Business Capital: TCI Business Capital provides the facility of a month-to-month contract ranging from $50,000 to $20 million.

• Payability: Payability helps e-commerce companies which need immediate payment on daily invoices.  

• altLine: If a company requires a sum of $30,000 to $5 million under 30 days, it should then go for altLine.

• Harper Partners: Nonrecourse or recourse flexibility ranging from $50,000 to $5 million.

When a seller wants to release funds before the stipulated period for credit time, a fee is demanded by the bank. This fee is termed as bill discounting. 

Bill discounting refers to the compensation a seller needs to pay to the bank for clearing the funds before the end of the period specified for as credit time. A bill is obtained from the seller and presented to his clients to collect the full amount. This method is an effective financial tool which when applied to a particular buyer can acquired goods from a seller, and the settlement is made by a letter of credit. The credit period can vary from 1 to 4 months.

LC bill discounting or discounting of Letter of Credit (LC) is a short-term credit tool given by the bank. In the Letter of Credit discounting process, the documents or the bills of the exporter are purchased by the bank, and a payment for a security or a fee is made in return by him. This doubt also often arises as what is bill discounting under LC?

The short-term crediting of the seller by the bank is called Letter of Credit bill discounting. The banks can make negotiations, purchase of the document or early disbursement of a postponed payment by financing the client in case of Letter of Credit. Meaning that a bank pays to the customer the sum shown in the agreement before getting the payment from Letter of Credit issuing bank.

Letter of credit discounting is beneficial to all the parties in the trade:

The buyer gets the goods along with the credit period to pay. 

The bank gets a dividend from the buyer when he makes the payment to the bank.

The seller gets quick payment for his sale.

Factoring is a kind of financing that improves the cash flow of a business which has late paying invoices. As a rule, a factoring organisation buys the accounts receivable of the customers. This buy gives the customer access to quick funds which can be utilised for business purpose.

Business factoring is a method of financing which improves the cash flow of an organisation which has pending invoices. Generally, a factoring business purchases the accounts receivable of a vendor. This purchase gives the vendor immediate access to funds which can be used to pay the expenses for the business. 

Before a business can start financing its invoices, the business must choose a finance organisation and set up an account. The following steps should be considered to start financing their invoices.

• Find a factoring company
• Set up a factoring account
• Funding first-get your money
• Getting the rebate
• Ongoing financing

The terms 'bill discounting 'or 'bills purchase' mean the same. Bill discounting is an agreement where an amount of sales bill is recovered by the seller from the financial intermediaries before their due time. Such mediators charge a fee for the service. From the opposite side, it is a business vertical for a wide range of money-related intermediaries like banks, financial institutions, NBFC, etc.

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