In this article, we will discuss the different types of bill discounting in India.
Bill discounting is a way for businesses to get money from a financier in order to meet their working capital needs. The business can keep the bills as collateral with the financier. In return, they will need to repay the credit once they receive money from their customers, but at a low-interest rate of 1% pm.
It is a type of loan where you can get money quickly by using your unpaid invoices as security. The money you get will be put in a trust account run by the financier. Once the invoices are paid, the financier will take their fee or interest and then refund the rest of the money to you. nowadays, people who are not financiers also use digital platforms to give short-term loans to businesses in India so they can make a quick profit from the exchange of receivables.
Types of Bill Discounting in India
Let’s get into the main topic of types of bill or invoice discounting:
1) Confidential Invoice Discounting:
This type of financing ensures that the business deal between a financier and a vendor remains confidential. Additionally, your customer will not know that you are working with an invoice discounting company. This means that you can get up to a certain percentage of your unpaid invoices cashed. This helps you meet your cash flow needs for running your business on a day-to-day basis.
Delayed payments or nonpayments can make it hard for businesses to stay afloat. However, this does not mean that you have to lose your relationship with your customer. In fact, delayed payments or nonpayments do not require lots of negotiation.
2) Whole turnover invoice discounting:
Businesses can get loans by using this discounting method. This means that the business can borrow money based on how much money it makes, even if some of its customers don’t have good credit. This can be helpful if some of your customers don’t have good credit in the market.
3) Selective Invoice Discounting:
Some businesses choose to use individual customer invoices as security to get money from a lender. This way, the business can get the money it needs depending on what it needs. The business can get more advances this way, but the lender’s risk depends on the customer’s creditworthiness instead of on the business itself. This is more suitable for businesses that have customers who are likely to pay their bills.