Most businesses in India lack the required liquidity to continuously purchase goods and materials to work on more orders. They struggle to maintain sufficient cash flow for making operational expenses. According to experts, having excessive capital tied to receivables can adversely affect the growth of the business. If you do not have enough money to survive through the invoicing period, then you may end up with many clients to work with, but with no resources to begin any new project. This is where the facility of bill discounting comes in as it is an extremely quick and hassle-free mode of raising funds.
What is bill discounting?
In this process, a financer immediately buys your invoice bills and provides a loan against them, and later on collects the payment directly from the debtor on the due date. This further includes administrative charges, fees, and interest rate that may significantly vary on your creditworthiness and your ability to repay the amount.
Why should you opt for bill discounting?
These days, more and more businesses are discounting the bills to welcome an influx of cash, rather than applying for personal loans. The main reason behind the rising popularity of bill discounting is that it can be availed without pledging any asset as it is offered against your invoices.
In addition, since there are minimal formalities involved, the application process does not take much time and the required finance is sanctioned as quickly as possible. Moreover, it is important to note that in case of non-payment, the lender does not possess your asset, however, it can hurt the reputation of your business.
Whether you run a small business or a large corporate, everyone can opt for bill discounting to raise funds. However, you may be asked to meet certain requirements before sealing the agreement and some of them are:
• Both the sides should share a written contract stating the agreed upon payment amount.
• In response to the sales order mentioned in the invoice, there should be a purchase order made by the concerned customer.
• There should be a fixed date decided for outstanding payment as promised by the customer.
• The goods should have been delivered to the consumers successfully and without any issue in the delivery process.
Various ways in which discounting bills can benefit your business
1. Quick access to funds – Businesses that require cash more quickly should definitely consider discounting of bills as a better alternative for raising finances. As with fast inflow of cash, small businesses can smoothly work on next assignments and repay the pending dues. This further allows them to grow their operations without facing any hindrance.
2. Collateral-free financing – When it comes to discounting of bills, you do not have to present any asset as collateral and only a certain amount of fee is deducted from the invoice, and that is the only additional cost you bear to get your payments sanctioned.
3. Hassle-free process – Once you submit all the required documents, the funding process runs seamlessly and this, in turn, allows you to give all your attention to your operations rather than constantly worrying about the payment procedure.
To sum up, bill discounting has become one of the most reliable ways of raising funds for the business. This hassle-free funding helps to keep the business afloat and reduces the dependency on monthly payments. Most importantly, as it is an unsecured loan, your assets will not be seized in case of default in payments. However, you must repay the loan on time to maintain your good credit score and the goodwill of your business.