What is Invoice Bill Discounting?
Businesses across the world, small or large need working capital to run their day to day operations. Invoice bill discounting is an arrangement which is used largely for this purpose. This is a financial arrangement where funds are raised by an advance sales bill from a business before the payment is due. Exclusive invoice bill discounting software which allows financiers to view, track & monitor the performance of invoices & keep a close watch on repayments. Invoice Bill Discounting Software has many advantages, especially for small business.
When an enterprise enters into a sales agreement with a buyer, it needs money to manufacture the goods, run the company, pay salaries, etc. An intermediary, usually a financier, purchases the bills from the seller and provides funds in return. Once the sales transaction takes place, the financier collects the payment from the buyer on behalf of the seller.
The process is also commonly called bill discounting or purchase of bills. It is widely used by small and large-scale companies.
What are the advantages of Invoice Bill Discounting?
Invoice bill discounting has several advantages for a business:
- Increased cash flow and working capital
- Beneficial for startups
- Unlike a business loan, the borrower has to pay only the amount of money used
- Risk of bad debt is passed on to the financing company
- Quick processing of fund
What is the process involved?
Invoice bill discounting involves the following steps:
- To begin with, the business sells its product, which may be a good or a service on credit and raises an invoice to the buyer. When the invoice is accepted, the buyer agrees to pay the bill on a particular future date. The future date in most cases is 30 days. However, it can be more.
- The business now has a valid invoice. It then approaches the financier to request for bill discounting. The financing intermediary assesses the creditworthiness of the buyer, the legitimacy of the bill and calculates the risk involved in financing the invoice.
- After completion of the assessment, the fund is released to the business. While releasing the funds, fees and other charges are debited. The fund is used by the seller as working capital.
- When the payment becomes due from the buyer, the financier collects the same from the business on behalf of the seller.
What are the challenges faced by Financial Institutions?
While there are several advantages of invoice bill discounting both for the buyer and the financier, it is not free from challenges. Institutions which deal with the product face the following issues:
Lending risk assessment:
Every business operates with some inherent risks, and this is where financiers face the main problem. The financier has to evaluate the business risk involved in a bill discounting transaction and then manage the business risk.
For this purpose, they have to conduct a series of actions. The end result is to ensure that the loan does not go into a bad debt. In this endeavor, usually what a financier does is to establish links between what the enterprise does currently and what it is capable of in future. A lot of cash transactions is not enough. The record of sells, products, clientele, etc, everything comes under the purview of the financier for assessing the risk.
Invoice bill discounting works under strict regulatory monitoring in India. The reason being the identification of certain frauds a few years back. Hence, while financiers thoroughly examine the financial records of a company to assess the risk, they also have to keep in mind the regulatory requirements. Even if a seller has the right eligibility, if the regulatory norms are violated, the loan will not be sanctioned.
Deciding the financing method:
Invoice Bill Discounting can be done in various ways. The financier has to choose which way they want to go about financing. The most common type of financing is supply chain financing where financing is provided to a supplier and a buyer based on their known financial records.
Alternatively, financiers can go for working capital financing which depends upon seasonality, procurement place, the point of sales and demand for the product, etc. Then there are term loans which are long-term lending relationships started on the basis of the financial health of a company.
Why CloudBankIN for Invoice Bill Discounting Software?
CloudBankIN intuitive interface of Invoice Bill Discounting Software would allow the financiers to view, track and monitor the performance of the loan product in an effective, seamless, and reliable way. Here is a list of reasons why CloudBankIN is the best invoice bill discounting software which would meet the needs of every financial institution:
- Invoice Bill Discounting Software has the capability of identity management, queue management and user access control.
- CloudBankIN gives a competitive advantage of having a powerful software which is capable of handling all phases of a loan’s life cycle from origination to the collection.
- The in-built document management system of CloudBankIN allows to store and maintain a record of all important documents from invoices to financial statements in the same interface for easy reference.
- CloudBankIN is integrated seamlessly with the third-party credit rating agency modules which would include the lending institutions an advantage to make an appropriate assessment of risk level involved in financing a specific supplier.
- The robust business analytical engine of CloudBankIN with its enhanced dashboards and array of reports would offer an in-depth insight of the loan portfolio’s performance to make intelligent business decisions.
- The omnichannel experience offered by CloudBankIN helps lenders keep an eye on the client and debt performance from anywhere real-time and keep track of discrepancies or defaults to mitigate risk in an efficient way.
Click here to schedule and demo, and learn why CloudBankIN is the best Invoice bill discounting software for your organisation.