Factoring and bill discounting in finance

2 min

In business, it is a common practice to supply goods or services to customers on credit. As a result of doing so, the business increases the accounts receivable. In some cases, this restricts smooth cash flow and you can free up blocked working capital by pledging your receivables as collateral to avail immediate funding. This is known as factoring and with Bajaj Finserv, you can transfer your receivables’ ownership to bridge the funding gap.

Thanks to this provision, you can access a sizable amount of funds that can easily help overcome any cash crunch. Aside from factoring in finance, the other option is to opt for bill discounting. This provision allows you to clear any unpaid invoices for:

  • Purchase of raw material
  • Sundry purchases

It comes with a convenient tenor of repayment through invoice recovery. However, while both the options offer instant finance to meet working capital needs, the Bajaj Finserv Loan Against Property offers a sizable sanction for core capital funding requirements. With it, you can get approved for of up to Rs. 10.50 Crore* by mortgaging your property as collateral. Moreover, thanks to the easy application procedure, this provision ensures quick funding, ideal even for urgent requirements.

You also benefit from affordable loan against property interest rate offers and these can help keep your business outgo optimal. The best way to find the perfect cash flow balance is to plan the loan in advance by using the loan against property EMI calculator.

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Frequently asked questions

What is factoring in finance?

Factoring in finance is a transaction where a business sells its outstanding invoices to a third party (the factor) at a discount. This provides the business with immediate cash, improves cash flow, and transfers the responsibility of collecting payments to the factor. Factoring is commonly used by businesses to access working capital, manage risk, and streamline the accounts receivable process, but it comes with associated fees.

What is example of factoring in finance?

Consider a small manufacturing company in need of cash flow. They have delivered products to a customer with an invoice of Rs. 50,000, but the customer will pay in 60 days. To access cash quickly, the manufacturing company approaches a factoring company. The factoring company agrees to buy the invoice, offering, for instance, 90% upfront (Rs. 45,000). They then take over the responsibility of collecting the payment. When the customer pays the Rs. 50,000 invoice, the factoring company deducts their fees (Rs. 5,000) before paying the balance to the manufacturing company. Factoring helps the business maintain operations while the factoring company earns a fee for risk and collection management.

What is factoring in simple terms?

In simple terms, factoring is a financial transaction where a business sells its unpaid invoices to a specialised financial company (the factor) at a discount.