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Invoice discounting also called Bill Discounting is a way in which a company can borrow short term funds from banks or financial institutions based on their outstanding invoices. Invoice Discounting is a manner in which businesses can raise short-term funds to meet short-term liquidity needs. Invoice Discounting is an alternative to a business loan or an overdraft facility. Under Invoice Discounting, the company provides the unpaid bills to the banks or financial institutions and in return, receives funds up to 90% of the outstanding bill value. It helps keep cash inflow from customers constant and they can pay within their normal credit period.
Invoice discounting platforms work like matchmaking services for Businesses with Invoices and Investors seeking alternative financing solutions with high returns. Such platforms host a range of Investors from Individual Investors to Banks and NBFCs. Discounting platforms serve this purpose as the tenor for this facility generally range from 30–90 days.
When it comes to invoice discounting, there are a few types that you can choose to maintain a steady flow of working capital.
With this type of funding against an invoice, every invoice that a business generates across the turnover is discounted to raise funds, irrespective of the needs of the said business.
Like its name suggests, with this type of financing, the entire process is carried out in confidentiality. It means that suppliers or customers of a company are unaware of the business raising capital against invoices before payment is received.
Spot factoring or selective invoice discounting are some of the examples where single receivable invoices are sold to third parties to raise capital. These are the three principal types of invoice discounting which help companies acquire working capital for their businesses without hassle.
TReDS is an
institutional mechanism set up in order to facilitate the discounting of
invoices for MSMEs. M1xchange TReDS is a digital marketplace to sell the
receivables to banks/NBFC. Set up under the approval of Reserve Bank of India. Discounting
process is digital from submission of invoices to receiving of payments. There
is no physical movement of documents. Trade Receivables Discounting System is a
welcoming step by the RBI to regulate the trade receivables between MSMEs,
large corporates and financiers. This is beneficial not just for these
individual players, but for the entire economy of the nation.
TReDS is an institutional mechanism set up in order to facilitate the discounting of trade receivables of MSMEs from corporate buyers through invoice discounting by multiple financiers. This step is deemed to augment the trade account receivable management of the micro small & medium enterprises.
Omozing Invoice Discounting platform provides businesses and their suppliers with quick access to working capital. Eligibility and amount of discounting is governed by the creditworthiness of the business and therefore they should be willing to share their financial information and other related documents. Through invoice discounting, you can avail credits up to a certain percentage of your unpaid invoice’s total value, allowing you to ensure a steady inflow of capital to your business at all times. As an off-balance sheet solution, this invoice discounting platform allows businesses to use unpaid invoices as collateral to get immediate working capital, thereby helping in growth and expansion.
Omozing provides a platform
for business owners to sell and investors to purchase invoices raised on blue
chip companies. It combines the best in class technology experience with credit
underwriting & data analytics capabilities to create a brand new investment
Business-owners looking for advance on their invoices, raised on blue chip/creditworthy institutions, can use our platform to sell these unpaid invoices at attractive rates.
Unlike the above platform, FlexiLoans is not a facilitator but a lender. The SMEs lending platform discounts bill through their lending product called Flexi Vendor Financing.
The company has a set of guidelines to mitigate its risk. A company should be approximately a year old with a turnover of INR 20 lakh. Additionally, the company should have booked a profit of about INR 5 lakh and a supplier of blue-chips.
Receivables Exchange of India Ltd (RXIL) a joint venture between Small Industries Development Bank of India (SIDBI) – the apex financial institution for promotion and financing of MSMEs in India and National Stock Exchange of India Limited (NSE) – premier stock exchange in India. RXIL operates the Trade Receivables Discounting System (TReDS) Platform as per the TReDS guideline issued by Reserve Bank of India (RBI) on December 3, 2014. Their vision is to be an integrated provider of financing platform par excellence benchmarked with global best for supporting the growth and development of Micro, Small and Medium enterprises for their inclusive, sustainable economic and social development.
This is a cloud-based platform and uses Artificial Intelligence to discount the bill. However, it is accessible only ‘by invitation’.
Priority Vendors have tied up with companies like Godrej Consumer goods, Whirpool, Dabur, TVS, among others. So if you are their vendors, you have an option to discount your bills.
Here are 5 things you should keep in mind: