Your Complete Guide to Business Financing with Bill Discounting
Business financing can be of various types, from long-term to quick financing, and from owned to borrowed funds. However, the distinction probably most appropriately categorised would be financing based on the use it is put to. Bill discounting is one such essential business funding option availed in recent times typically to fulfil the operating funding needs of a venture.
Also known as invoice discounting, it is a short-time financing arrangement with the repayment period entirely dependent on the credit cycle of a business. Let’s take a closer look at the mode of financing to better understand its need, uses and benefits.
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What is Bill/Invoice Discounting?
Bill discounting is a financial arrangement that allows you to leverage your unpaid invoices and sales receipt to raise short-term funds. The loan requires you to pledge your unpaid invoices to raise funds in lieu of a set interest rate.
It provides easy access to capital and is sanctioned readily against the provided invoices. Invoice discounting is one of the most common financing means to improve your business’s cash flow.
Reasons to Avail Business Financing through Invoice Discounting
You can fall back on invoice discounting for your business’s immediate funding needs for two good reasons –
- Improved efficiency of the business
Invoice discounting is a financing arrangement designed to provide businesses access necessary capital for immediate financing needs. It thus leads to increasing business efficiency without any added risk of collateralising business asset.
2. Better cash flow
The core idea behind financing through invoice discounting is to increase operations funding of a business for day-to-day cash flow needs. As businesses can raise a significant percentage of invoice value as funds much before the due dates, the working capital cycle shortens significantly.
Top Benefits of Financing through Bill Discounting
One can thus arrive at the following prime benefits of financing through invoice discounting.
- Unhindered operations funding management: The financing arrangement provides sufficient funding shortly after invoice issue. It thus eliminates the risk of any delay or default in actual payments, thus ensuring unhindered flow of daily business operations.
- Easy management of invoices: With worries regarding invoice receipt and management sidelined, it also helps manage your business invoices better.
- Business growth receives a boost: An increased operational funding and readily available cash also helps with running your business smoothly for long-term growth.
- Increased customer trust: As an eliminated risk of delay allows customers the liberty to repay with more flexibility, the trust lent on the company increases. A goodwill so created can also bring about new customers for the venture, thus assisting in overall business prosperity.
Eligibility Requirements for Invoice Discounting
To avail financing through bill discounting, a business must catch up to specified requirements. Some of the standard criteria are listed below.
- The funding agreement should be endorsed in written by the business as well as customer involved.
- A purchase order must have been raised by the customer against a corresponding sales order.
- The good/s mentioned in the order must have been successfully delivered to the concerned customer.
- An invoice must have been raised by the business and received customer approval, but shall remain unpaid to be eligible for discounting.
- A particular date must have been conveyed by the customer regarding invoice payment.
In case a business fulfils these requirements, it can proceed to apply for funds through invoice discounting.
At present, many businesses have simplified availing the bill discounting facility through a simple online application. You must be prepared with all the requirements like written endorsements, purchase and sale orders, invoices, etc. before you apply for hassle-free processing of finances. Make sure to provide invoices issued to reliable customers only to avoid any hassle non-recovery from the lender.