Bill Discounting – A Flexible Mode of Raising Funds and Supporting Working Capital

Almost every business provides credit facilities to the clients to gain their loyalty and to boost the sales. Although this technique undoubtedly helps in forming long-term relations with the clients, the working capital gets severely affected when a large sum of money gets stuck in the receivable bills. As the lack of proper cashflow can make it difficult for the business to grab some of the growth opportunities, or even smoothly run the basic everyday operations. To avoid such situations and prevent the business from suffering a major loss, the business owners can opt for bill discounting.

In this hassle-free mode of raising funds, the company’s unpaid invoices which are to be paid on a certain due date are offered to the lender, who then provides the required funds. However, before disbursing the money in your account, the lender thoroughly checks the credit score and the pay payment history of the debtors to whom the bills have been issued. As this way, he gets the assurance that the debtor will timely make the payments of the bills he owns to your business, which actually will be received by him.

Do you meet the eligibility criteria for bill discounting?

• The business should be minimum 10 months old and should have a credit score of 650 or above.

• It should have engaged with at least 2 large scale corporates.

• There should be a purchase made by the customer against the order mentioned in the bill offered to the lender.

• A date must be fixed on which the customer will pay the outstanding payment.

• The terms of agreement must be supported by the business owner and the customer, and everything should be clearly stated in writing.

• The business owner should have successfully and timely delivered the goods to the customer.

What are the advantages of discounting bills to arrange funds?

• Collateral-free funding – The most important benefit of discounting bills is that you do not have to offer any asset in the form of collateral in order to quickly receive the funds. As the lender provides you the money entirely on the basis of your credit score and reputation in the business world. However, a certain amount of fee is deducted from the payable invoices and that is the only cost you pay for getting the bills discounted.

•Quick and simple sanction process – Once you are done submitting all the required documents, the whole process from approval to sanction, does not take long and the funds are immediately transferred in your account. This way, you do not have to run after the lender to complete each step of the process and you can easily divert your attention to the other crucial business matters.

• Your business retains the control – Instead of chasing your clients and continuously asking them to make the payments, bill discounting does not alter your healthy relationship with your clients. As the business owner gets the money from the lender while the client enjoys the longer credit period offered by you.

• Ensures business growth – By getting the bills discounted, the business owners are able to increase the working capital which further results in expansion of the daily operations, increase in productivity, and execution of innovative strategies. And together all these aspects give a boost to the overall growth graph of the business.

How to select the most reliable lender?

• You must make sure that your lender does not intend to pester your client with constant reminders for the payments. So, in order to preserve your clients, you should include this point in the pre-agreed terms, before proceeding with the lender.

• You should ask about the total time your lender will take to process the paperwork and disburse the funds. Whether your lender takes few hours or days is a point of concern and should be discussed before signing the agreement.

• Also, you should ask the lender about his familiarity with the industry you operate in. As only someone from your industry will be able to understand the complications and will offer better discounting rates.

Conclusion

Regardless of the nature or size of the business, bill discounting has become one of the widely preferred ways of quickly generating the required funds. This mode of funding involves a hassle-free approval process and does not demand any collateral to raise the funds. However, you must meet the eligibility criteria, and follow the points mentioned above in order to equip yourself with the most dependable lender.