How You Can Benefit From Invoice Discounting?

Invoice Discounting Benefits

Invoice discounting is a finance facility that allows a company to meet their day to day recurring expenses. It solves the cash flow problem of the company. A company needs cash to execute their day to day activities. Invoice discounting is a type of invoice financing. It is a source of short term borrowing to meet the liquidity needs of a company. In invoice discounting the company uses an unpaid invoice or unpaid account receivable as collateral for a loan which is an issue by the finance company. The amount of loan is less than the amount of outstanding receivable it might be 95% of the value of account receivable.

Some of the important points to show how a business may benefit from an invoice discounting facility are:

•    Invoice discounting in India make it possible to pay suppliers or creditors due to punctually and its increase their credit worthiness. It helps in improving the reputation of the business. It helps to create and maintain a healthy relationship between the company and the supplier, thus giving more bargaining power to negotiate a better deal with suppliers.

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•    The invoice discounting business uses the unpaid invoice to release cash that is locked in account receivable. Invoice discounting provides immediate cash to help business to meet operating expenses like paying salary to employees and purchase more goods etc.

•    The best thing of invoice discounting is that there is no inventory or asset/movable item as pledge or collateral, In the invoice discounting the company uses the already generated invoice which is still unpaid by its customers. The company uses this unpaid invoice as collateral for receiving advance cash from the lender. Entities which have a huge amount of outstanding receivables can release the blocked funds.


•    Through the invoice discounting facility, entity’s DPO Extension in India, DPO stands Day Payable Outstanding it’s a financial ratio that shows the average time (in days) that a company takes to pay its bills and invoices to its suppliers, vendors or other creditors. This ratio indicates how well company cash outflow is managed.

•    Some clients ignore or delay in dealing when they realize their supplier is facing financial difficulties in business. This may affect the relationship and more chances of losing deals and contracts. In Invoice Financing in India client will know that company are using invoice as short-term finance facility but Invoice discounting allows business to arrange cash without their client's knowledge, that allows business to maintain their relationships with clients.

•    Invoice discounting is the best source to increase and improve working capital in India. Invoice discounting will help to maintain sale ledger, payment chasing, and invoice processing.

 •    Sometimes a business that is facing cash flow problems, and not able to pay its suppliers and that may result a shortage in business’s Inventory. In this situation, the company may continue placing orders to the existing customer but at the same time not able to fulfill or place new orders. Since invoice discounting provides immediate cash flow, the company will be able to pay suppliers and replenish its depleted inventory.

•    With the bill discounting in India, an entity basically handovers account receivable to the finance company. The invoice discounting doesn’t have any team and condition regarding a certain amount of account receivables. And invoice factoring can cost 0.5% up to 5% in fees this calculation is against the value of account receivables, in addition, some other fees also involve originating the loan. In contrast, invoice discounting usually between 1.5% to 2.5% fees without any additional fees.

Invoice Discounting For Small Businesses

 

INVOICE DISCOUNTING is one of the simplest forms of invoice financing. It is a kind of loan in which the invoices act as the collateral. The invoices generated are mostly to be paid between the periods of 30 to 90 days by the customer; it may vary According to the policies of different companies. But when a business requires the money for its WORKING CAPITAL, this amount acts as a hindrance in the workflow of the business. This is where the role of a lender comes into play. The small businesses can forward these unpaid invoices to the financier who after analyzing the authenticity of the invoices offer a short-term loan to the business. They provide them with 70-80% of the total amount of the invoices.

A perfect example of INVOICE FINANCING:

Suppose a small business owner Manoj has invoices worth Rs 1,00,000 that are yet to be paid by the customers. Manoj forwards these invoices to lender X. After scanning the invoices the lender credits the amount of Rs 80,000 to Manoj's account and it can be used by him for further business transactions. When the customers pay their outstanding invoices they are credited directly in the account of the lender i.e. company X about which the customers are unaware of. The company X then transfers the amount to Manoj's account after deducting their fees. The amount of fees deducted varies depending upon the duration in what the customers pay back to company X, the longer the time period the higher is the fee.

INVOICE FINANCING has proved to be of great advantage for small businesses. Some of them are listed below.

Better Cash Flow

The top most advantage of INVOICE FINANCING or INVOICE DISCOUNTING is that it helps in the betterment of the cash flow of the company making it better for the company to cover up the expenses of the company.

Flexible Payment Terms.

In order to attract more customers, you can easily extend your payment terms from anywhere between 30 days to 90 days, as you do not have to worry about the lack of funds required for running the company.

Easy Eligibility And Simpler Application

The application process is also quite simple in this process of BILL DISCOUNTING, as only a few documents mainly the invoices are to be authenticated, unlike the other sources of finance which has a never-ending list of documents to be submitted and verified. It is one of the easiest ways of procuring finance which requires the least of the paperwork.

Fast Credit

Unlike other credit sources which can take weeks or even months because of its legal formalities to be fulfilled. INVOICE FINANCING is a kind of SUPPLIERFINANCE that provides credit mostly within a week once the invoices are submitted.

So next time your business gets short of funds, you can go for PRIORITY VENDOR India's Largest Online Vendor Finance Platform which provides the option of INVOICE FINANCING which is a much quicker way of obtaining credit, rather than reaching out for traditional financial institutions which might take a lot of time and a lot of paperwork.

Everything You Should Know About Invoice Discounting

Online Invoice Discounting Platform

Invoice discounting imparts solutions to get an advance against your outstanding customer invoices either on a partial or whole ledger basis. It is a practice that is executed for utilizing a company’s due accounts received as a collateral basis. You can think about this unpaid amount to be distributed through a finance company as it is customarily done by companies dealing with Invoice Financing in India. This mode of discounting is rather a temporary approach to borrowing for a certain reason. The main reason could be attributed to the fact that the finance company may transform the worth of debt unresolved. This really happens when the amount of accounts receivable collateral fluctuates. Your debt amount given from the finance company is lower compared to the amount of outstanding receivables. That really is generally 80% of most invoices which can be somewhat less than a span of ninety weeks old.

Get Instant Cash

You may gain a lot of awareness about invoice discounting here. Invoice discounting fundamentally speeds up funds movement from clients. The purpose here is not to agree with the clients as per their credit conditions. You get cash instantly once you issue the invoice. Invoice discounting can be an important source of the working capital fund as the limitation of bank finances, due to this credit adversity. Banks are rather attracted towards invoice financing as it reckons to outstanding invoices from the borrower as security. It is a pervasive fact that the companies depend largely on the banks for their working capital in India.

This can be referred to as an approach for the companies to borrow money based on amounts. Invoice financing permits companies to regain cash flow, indemnify employees and suppliers, and reinvest in processes. Firms typically pay a percentage of their invoice sum to the lenders as a charge for borrowing the cash.

What is Bill Discounting

Bill Discounting is really a discount or fee which a lender chooses out of a retailer to release the capital. This will be the money that the bank asks until the credit span predominates. This bill is later given to seller’s customer and the comprehensive amount is written. It's valid in situations when a customer purchases products and manufactures cost via letter of the credit. For discounts on bill, the credit period can fluctuate in thirty days to as large as a hundred and twenty times. Predicated on the credit score value of the buyer, the lender carries the discounts out of the amount as it is done in the process of Bill Discounting in India. Bank afterward pays this volume in the conclusion of the credit score period.

How Invoice Discounting Functions

In invoice discounting discounts are given by a range of lenders.This really is offered by those that will supply you with a percentage of the money owed on your own bills when they have been raised up. This entails that the amount will proceed into your account without a delay. Regardless of how much time it can take for a customer to recompense following performing invoicing.

Generally the lenders do not come up with money which equals the value of each invoice. 75% to 90% is usually acceptable here. Once the customer has provided finance for the invoice the remaining amount would be compensated after deducting the charges of invoice financing lender.

Priority Vendor is highly flexible. You can borrow small or large amounts on business loans, up to 80% for factoring purposes. The flexibility of invoice funding indicates that it often costs much lower than other financing options.  At Priority Vendor, delivers a cost-effective and adaptable solution to help your business grow when you can easily manage your cash flow challenges. We are very competitive in the market place.

Early Payment Discount Importance For Today's Businesses

Payments today have changed a lot since the old times. The manual invoices have been replaced by latest digital technologies with less of paperwork. These technologies have helped us in gathering a clearer and transparent picture of our payments and transactions. There has been an increase in the practice of early payment discount. More and more businesses are opting out for the supplier financein India.

For most big organizations in India the amount outstanding against their invoices acts a working capital in India for their business. As working capital is the basic necessity for a business, they try to stretch the payment dates for as long time as possible so that they are able to fully utilize the amount outstanding. The vendors whose amount lies outstanding also want the money for further business; this is where invoicediscounting in India comes in role. The vendors are ready to accept a lesser amount against their outstanding amount if they are provided with an early payment in India. In the corporate world, it can also be known as a forced discount on the vendors. If the vendor is in a weaker cash position and does not have enough cash then they are left with no choice but to accept a lesser amount than the one mentioned in the invoice in return of the early payment.

                                     

Assuming a fair play for all the parties involved it is not necessary that a company runs smoothly even after the vendors have an early payment discount clause in their contracts.

Considering both buyers and sellers

In place of offering a fixed discount rate the businesses in India can work in coordination with the vendors and evaluate each and every invoice thoroughly offers a dynamic discounting in India. It has to be like a grading process which should work according to the duration of early payment. The quicker the payment is the higher is the discount offered. This process is managed through digital software; this software enables buyers and sellers to access invoices and payments digitally providing a real-time Financial visibility. They are able to differentiate which invoices are eligible for what type of discounts.

                                   

This digital platform has unified the process of manual invoicing into an electronic and digital platform which reduces most of the work in involved in manual processing making it much easier to work transparently for both the buyer and the seller. Buyers can have access to their cash and balance sheet to increase their size and amount of early payment discount.  Through this process of bill discounting in India, the sellers get access to an early payment giving them the working capital to continue their business.

These Digital platforms are extremely necessary for the smoother flow of business as it enables faster invoicing and low cost. The real advantage of dynamic discounting is that it gives a better control for negotiation to the sellers as well. There are many good companies in India providing these services PRIORITY VENDOR is one of the leading companies for supplier finance in India.

Supply Chain Finance And Dynamic Discounting

Dynamic Discounting & Supply Chain Finance  

Almost every business in this world thinking of a long run wants to keep its suppliers happy. They very well realize the importance of contented vendors for the smooth running of a business. Cash is the most important aspect of a business but unfortunately, due to dull economic conditions and lack of cash in the market, businesses are unable to cater to the payment needs of the vendors. However, there are a few good supply chain management options available like Dynamic Discounting and Supply Chain Finance.

Supply Chain Finance- It is a method of Vendor Finance in which the buyer pays the supplier through a third party. The third party or the financier pays to the supplier on buyer's behalf. The amount which is paid to the supplier is less than the actual amount mentioned on the invoice. The financier then takes the full amount from the buyer as per the agreed terms and the difference between the amount on the invoice and the actual amount paid to supplier serves as a profit for the financier. This method is also known as Supplier Finance. Both the buyer and the supplier get the benefit from it. The buyer gets away with the burden of timely payments without affecting the smooth flow of business, on the other hand, the supplier has access to quick cash and gives them the Working Capital required for running the business.

Dynamic Discounting - It is a more flexible way of early payment in which the buyer pays the supplier using their cash. Under this method, the supplier accepts the payment from the buyer at a discounted rate. It is called dynamic because the rate of discount keeps on changing depending upon how early the buyer makes the payment. The earlier the payment is the higher is the discount rate. It is a kind of  Cash Discount which the supplier gives in return for the early payment. This method is beneficial for both the parties as it helps the buyer in purchasing at a lower rate and as per the supplier's point of view it helps in smooth flow of business due to instant availability of cash. 

The purpose of both Dynamic Discounting and Supply Chain Finance are almost the same but the only difference is that the discount offered in dynamic discounting is never fixed whereas the discount in Supply Chain Financing is almost fixed. Priority Vendor is one of the most trusted names in India providing Vendor Finance services to its clients. Looking at today economical conditions and lacks of cash flow in the market it is recommended for businesses to opt for Supplier Finance in order to lower their burden of timely payments.  

Source: Medium

How Does Dynamic Discounting Platform Work?

source: google

As the word Dynamic suggests, dynamic discounting is a spontaneous process through which the buyers have got the power to pay their suppliers at a discounted rate which is not fixed. The rate at which it changes is dependent upon the time of payment. If the payment is made early the discount offered is also heavy. It is a simple online platform upon which the suppliers can submit their invoices for early payment and the buyers can view and approve the invoices eligible for early payment. It is a win-win situation for both the parties as the buyer's balance sheet is not affected and the sellers need for working capital is fulfilled on time. This ultimately helps in maintaining a smooth flow of business, as the seller gets the cash flow required to fulfil the next order.

Priority Vendor

Let's have a look at the whole process step by step.

- The vendor or the supplier sends the original invoice to the buyers.

- The buyer reviews the invoices and after it has cleared the eligibility criteria and all the credit/debit memos eligible for discount negotiation are cleared, it is uploaded electronically on the platform.

- After the invoice is uploaded the supplier can view the all the uploaded invoices on that platform. They can wait until the original maturity date of the invoice to get the payments or they can apply for an early payment request and get their payment released at an earlier date by giving a discount on the actual amount of the invoice.

Priority Vendor

PriorityVendor has been working upon bringing together various businesses and suppliers to connect them to this dynamic discounting platform. It is a simple process of smoothening the business flow. It has had a successful run in the retail, food and beverages, and electronic industry. This Vendor Finance facility prevents the suppliers or the vendors from approaching banks for loans at high interest rates in order to maintain their working capital. This kind of supplier finance also helps the buyer or the businesses as the money they are giving to the supplier was originally earning the interest from the banks which is quite low if we compare it to the discount that they are giving on the invoices to the vendors.

Source: Vendor Avii 

Cash Discount Vs Credit Card Surcharges

Source: Google

The use of credit cards has become quite common these days. In fact, we ourselves must have swiped a credit card many times for purchasing any of our favorite products. They have become an easy mode of finance for buying consumer electronics and other items through e-commerce these days, all the top E-commerce websites like Flipkart, Amazon etc have an easy option of EMI for several products through credit cards. It is more common with the people working in the new age corporates and other reputable MNC's as they are providing the credit card facility complimentary to their employees. As we are getting a credit which means a kind of loan and a loan is incomplete without an interest rate charged by the bank, here the surcharge fee acts as the interest rate which is charged by the bank from the user on every transaction they make through credit cards. Simply explaining it is the extra amount which a user pays on every transaction he makes through a credit card. These charges can go up to 4 %, changing depending upon the different states and their laws.

On the other hand, merchants also follow the practice of cash discount. In this practice, the merchants add an extra service fee to all their items and if a consumer is paying in cash the merchants waive off the service charge and provide it as a discount to the customer. There are several guidelines which the merchants have to follow while using this practice; they have to make the customers aware of this policy through proper informative boards in shops. Also, the receipt that the customer gets must have the service charge mentioned and also be shown in the discount given section. It can also be called a kind invoice discounting for the customers.

Source: Google

Both the practices have their own advantages and disadvantages. CASH DISCOUNT or BILL DISCOUNTING might allure the customers because of the fact that they have to pay less for a product as a benefit of early payment to the merchant. On the other hand some people might get attracted towards the credit card purchase because they might be paying extra but not paying at that point of time, they are buying the product on a kind of short-term loan, they can buy their desired products even when they don't have the cash by paying for it in the near future. It all depends on individuals and prevailing situation some might have the availability of cash and would prefer paying less and some might not have that much cash and would love to pay the extra amount on a credit purchase.