What is invoice discounting and financing?
Invoice discounting and financing are powerful financial tools that help businesses unlock working capital by leveraging unpaid customer invoices. By using outstanding receivables as collateral, companies can access a significant portion—often up to 90%—of the invoice value in advance, without needing additional security. This provides instant liquidity, allowing businesses to maintain smooth operations, manage expenses, and invest in growth opportunities without waiting for customers to pay. Unlike factoring, invoice discounting is usually confidential, meaning customers remain unaware of the lender’s involvement, allowing companies to retain control over their sales ledger and collections process. This flexible financing option is especially beneficial for small and medium enterprises, wholesalers, manufacturers, and service providers who face cash flow challenges due to delayed payments. With repayments typically aligned to customer payments, invoice discounting ensures a seamless cash flow cycle, transforming pending invoices into ready cash efficiently and conveniently.
Businesses can receive an advance on cash due from their customers through us, thus, making it an effective financing solution.
Read on to discover the features and benefits of invoice discounting.
- Instant liquidity: Obtain capital for everyday expenses or growth by availing a portion of the invoice amounts customers are yet to pay.
- Up to 90%* finance: Keep your bills receivables as collateral and get funding after discounting a percentage of the receivables.
- Flexible repayment: Repay the credit without draining your cash flow when you receive money from your customers.
What is invoice discounting and financing?
Invoice discounting and financing is a financial service that lets businesses avail finance by keeping its bills receivables as collateral. Obtain working capital after discounting a percentage of your receivables. The collateral secures the credit against any possible bad debts. Invoice discounting and financing is an asset-based solution that frees up liquidity trapped in unpaid customer invoices. As a business owner, you can receive an advance of up to 90%* of the cash due from your customers through us. You can repay the credit availed as your invoices are paid. Some notable benefits of invoice discounting and financing are:
- Secure funding without keeping other assets as collateral
- Solve issues related to slow payment of invoices
- Increase your business’ cash flow or obtain the necessary capital for growth
- Avail higher funding based on your receivables, as your turnover increases
- Receive essential guidance from experts to manage your business finance
Alternatively, when in need of capital, you can opt for a long-term loan in the form of a Bajaj Finserv Loan Against Property. Get access to ample, high-value funding for needs like infrastructure development, equipment purchase, business expansion, and other big-budget investments. You can quickly access financing, courtesy of simple loan eligibility criteria and an online application form. The repayment tenor is long, and you can use the loan against property EMI calculator to ensure that you have sufficient liquidity for your regular overheads and running costs.
Capital equipment leasing is yet another mode of financing you can utilise. Here, lease financing institutions fund the lease of equipment which you can retain possession of through a lease payoff. Use it to install capital equipment for your business.
Who can avail invoice financing?
The option to avail invoice discounting is open to any business that sells goods or services to customers with credit terms ranging between 30 and 90 days. Usually, companies operating in the following areas utilise invoice discounting and financing the most:
- Manufacturing
- Construction
- Wholesalers
- Courier service operations
How is discounting different from factoring?
While financing through invoice discounts is a viable option, the confusion of invoice discounting vs factoring remains. The primary point of difference between factoring and discounting is the incidence of the receivables’ collection and sales ledger control.
In discounting, the responsibility of collecting debtor balance and sales ledger control lies with the business availing it. Factoring, however, shifts the collection responsibility and control of the sales ledger to the lender. Whether you opt for one or the other depends on the credit amount needed and the size of your business. Both factoring and bill discounting are convenient financing methods.
Additional Read: What is loan to value in mortgage loan?
*Conditions apply
How does invoice discounting work?
Invoice discounting works like an overdraft or a series of short-term loans secured against your accounts receivable ledger. Here’s the process:
You sell goods or services to your customers as usual.
You generate invoices for these goods or services and send them to your customers.
An invoice discounting provider advances you a large portion of the invoice value, minus a small fee, after confirming the invoices are valid.
Your customers pay you according to the agreed payment terms, and you remain responsible for following up on any late payments, keeping control of your credit management.
After you receive payment from your customers, you repay the loan to the provider along with a fee, typically between 1% and 3% of the invoice amount, covering costs, risk, and interest.
Sometimes, customers pay into a trust account in your business’s name but managed by the provider, reducing the lender’s risk while maintaining confidentiality.
Benefits of invoice discounting
Investing in invoice discounting can significantly benefit your business by improving cash flow and supporting growth. Here are some key advantages:
Quick access to cash: This approach turns your outstanding invoices into immediate working capital. Instead of waiting for standard payment cycles, you receive funds upfront, enabling smooth operations and the ability to respond swiftly to market needs.
Financial flexibility: Invoice discounting provides access to funds as and when required. Since it’s not tied to long-term debt, you can meet urgent business demands and optimize your financial planning around short-term goals.
Control over accounts: A major benefit is maintaining full control over your sales ledger and customer communications. You don’t have to hand over customer management to external parties, preserving strong client relationships.
Confidentiality: Unlike factoring, where customers may learn about your financing, invoice discounting is usually confidential, allowing you to raise capital without affecting your business reputation.
What is the invoice discounting process?
Invoicing preparation: Businesses generate invoices for goods or services sold to customers.
Submission for funding: These invoices are submitted to a lender or financing company to access funds.
Verification and disbursement: The lender verifies the invoices and advances a percentage of their value based on the agreed terms.
Invoice collection: The payment for the invoices is collected either by the business or the lender, depending on the arrangement.
Repayment: Once the customer pays, the remaining balance—after deducting fees—is returned to the business.
