Bill Discounting
Bill discounting, including factoring and reverse factoring, provides SMEs with liquidity by selling invoices at a discount, optimizing working capital, ensuring prompt payments, and reducing financial burdens.
Bill Discounting For MSMEs and SMEs
Bill discounting, also known as invoice discounting, is a financial arrangement where a business sells its accounts receivables (bills of exchange) to a financial institution or bank at a discounted rate to obtain immediate liquidity.
This involves the business discounting its outstanding invoices and availing short-term financial assistance to keep working capital moving. This is governed and regulated under the Negotiable Instrument Act of 2010. Bill discounting includes Factoring and Reverse Factoring. Both methods are concerned with improving and accelerating cash flow without compromising the balance sheet.
Factoring is a financial transaction. It is a type of funding or borrowing in which a company sells its accounts receivable (invoices) to a third party (the factor) at a discount. The reason to factor in is:
- Working capital optimisation
- Credit protection against bad debts
- No collateral
- Prompt payments for your invoice
Reverse factoring, alternatively referred to as supply chain finance or supplier finance, is a financial technology solution to lessen the adverse impacts of increasing payment terms on buyers and suppliers, thus allowing both parties to unlock their working capital. Benefits of reverse factoring:
- Improved cash flows
- Reduced payment requests dearly
- The low interest rate of interest
- Develop long-term relationships
Talk to us to understand how you can reduce the burden of receivables and raise funding assistance against them.
