Invoice Financing

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Accounts receivable financing lets you get paid for your outstanding invoices right away for a fee.

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What is Invoice Financing?

Many a times, businesses and enterprises which use invoices as a means of doing business often experience late client payments. The unpaid dues by clients renders businesses especially small scale businesses like SMEs short of cash and working capital. This lack of funds causes a whole set of difficulties for businesses like operational issues and passing up on potential growth oppurtunities. A way out of this vicious cycle for businesses is to use the financial instrument of Invoice financing or Supply Chain Finance. Invoice financing or Accounts Recievable Financing or Invoice Discounting is essentially a financial product which helps businesses and SMEs take a loan with the organization’s due accounts recieved as a collateral. These loans can be availed for 80% of of the value of the outstanding invoices which are no older than 90 days.Invoice Financing businesses recover cash flow, recompense employees an supppliers,plus reinvest in the operations and processes of the business.

What is Bill Discounting?

Bill Discounting essentially is a discount/fee which banks take from retailers to release capital.Banks request this money from the retailers before the termination of the credit period. These bills are then offered to the seller’s customers and the entire amount is then composed. Bill discounting is valid in situations when a purchase is made by a customer and the payment is done via aletter of credit. The credit period for discount on bill caries from 30 days up to 120 days.The credit value of the buyers plays a significant role in deciding the discount of the amounts. Banks then pay this amount upo completion of the credit period. Simply put, bill discounting is essentially trading/selling a bill of exchange before it matures. Obviously, the value of the amount is lower than the par value of the bill. The discount amount depends upon the the time left for the maturity of the bill and the perception of risk involved in the risk to the bill.

Benefits of Bill Discounting

  • Instant Cash/Working Capital

  • Provides the business cycle a much-needed push/impetus

  • Permits business owners/ financiers to operate business operations without funds.

  • The debtor pays the interest amount only on the sum of money used

  • Since the competition for this type of funds is relatively high, there are  a wide range of financial products to choose from

How to apply for Invoice Finance

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Advantages of Invoice Financing

Invoice Discounting and Invoice Factoring

Although both are financial products which can help you to release capital held in the unpaid invoices, there are some ways Invoice and Invoice factoring differ from each other.Invoice Factoring is generally appplied by businesses with a smaller scale of operation such as start-up business or small firms. The invoice discounting facility is performed and undertaken by more reputable firms with large scale of operations. In addition to this, the the difference between these two financial facilities comes in as who is in control of the sales ledger accountability for the payments.
In Invoice Factoring, providers assume responsibility for the management of the sales ledger. Likewise, other responsibilities are credit control and requesting customers for settling their long-overdue unpaid invoices.
In Invoice Discounting, your own business is responsible for the control of the sales ledger, and the payment is followed payment proceeds in a normal way.

Another factor for the difference between these two products is the range of confidentiality. In Invoice Factoring, customers are more aware and conscious of the factoring plan. In discounting even though customers still recompensate you directly, the awareness of the involvement of a third party is limited.

Advantages of Invoice Factoring

  • Fund acquired recover cash flow position and the extra capital formed allows a business to rise to greater potential
  • Factoring strengthens your bargaining position and facilitates you to capitalize on discounts and early vendor options.
  • The cash raised by you develops alongside the enterprise
  • As business expands , more admittance to capital can be allowed


Following are the minimum requirements for Invoice Financing

Invoice Discounting Eligibility Criteria

There are some conditions that need to be met in order to facilitate teh onvoice discounting for your particular business venture. The eligibility criteria for availing invoice financing loan are as follows:

  • The Business/ Enterprise must have an operational history of more than 2 years.

  • Customer Vintage should be over 3 months

  • Minimum turnover should be above ₹ 1 Crore


Following documents are required for Invoice Financing

Invoice Discounting in India: How it Works?

The ultimate aim of an Invoice Discounting Firm will be to offer the factoring , as well as, forfeiting services. In addition to this, these servies will also encompass provide funding, value added services in a proficeint and a capable manner to the business entities in India.These services for discounting facilitated by the company will be global{export and import} and national in the scale of operations. These companies also offer management solutions along with recievables finance at value proposal prices. The bill/invoice raised by a smalll company in India for the purchases amde by them coorectly financed by the purchaser will be financed. Finance will be done against security of the bank.Seller units across India also provide bank gurantee of the company for gettting the financial support . There are several firms supporting invoice discounting/ Financing follow the approach of financing the bills drawn by them . These must be duly approved by the buyer.

The discounting is provided by a wide variety of lenders. The money for the invoice discounting/ financing is offered by those who will offer you a percentage of the money possessed on your invoices once these have been raised. This means that the funds will reach your account directly. Generally, not the whole value of the invoice is facilitated to the borrower however, 75-90% of the invoices are made available to the company. Once the customer has funded the invoice, the remaining sum of the invoice will be compensated minus the charge of the invoice finance lender. The invoice financer lends you the resources and the interest rate on the same will be between 1.5% – 3% beyond the base rates. In addition to the base rates, management fees ranging from 0.2%-0.5% will also be included in the charges to the borrower. Clearly, this puts a small dent in the profit margin however, it could be worth it to inject a revenue stream in the business operations to help further the day-to-day functioning, as well as, growth of the firm.

FREQUEntly Asked Questions

Get answers to all your questions

1. How Does Invoice Financing Works or Operate?
2. Solve Cash Flow Problems with Accounts Receivable Financing Or Invoice Financing?
3. Accounts Receivable Financing Or Invoice Financing: Crushing the Numbers?
4. What will bill Discounting or Invoice Financing Cost You?
5. Is Bill Discounting or Invoice Financing Worth It?
6. When Can You Repay the Invoice Finance or Bill Discounting or Account Receivable Financing?
7. Who Qualifies for Accounts Receivable Financing or Invoice Financing?


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