Some customers postpone payments and deliver at the last minute, putting an unfair strain on small businesses’ ability to fulfill their other business possibilities and requests. For example, Raju owns a textile manufacturing company and just delivered a significant order for a supermarket. According to the sales agreement, Raju will be paid two months later. The only issue is that he lacks the financial means to meet the raw material needs of the new order. Despite the fact that the first purchase is guaranteed payment, he risks losing the second if he fails to meet the deadline. In instances like these, Oxyzo’s sales bill discounting services come to the rescue and help a company’s future growth.
What is Sales Bill Discounting?
Due to late payments from clients who are unable to manage their cash flow, individuals or business owners borrow money from banks and non-bank financial institutions (NBFCs) for a short period of time. It’s a crucial instrument for SME finance, especially in managing and growing a business’s working capital. Discounting sales bills is a type of debtor financing. It is a method utilised by business owners to free up cash flow by selling unpaid invoices to a third party as loan collateral.
How Does Sales Bill Discounting Work?
At least once a month, the borrower company provides an accounts receivable report to the sales discounting finance company. Before selecting how much debt to lend the borrower, lenders or non-bank financial organizations (NBFCs) assess these data. The Sales Bill/Invoice Discounting process includes:
- Trading of goods and services – In the first phase, the borrower or small business sells goods or services to vendors or customers.
- Invoice raising- The borrower then issues invoices for the payments he anticipates receiving from clients or vendors within 90 days.
- Bill Discounting – The borrower then goes to the bank to have the bills reduced or to obtain a loan against the raised invoices. The bill is lowered once a minor fee is removed. However, for SME finance needs, Oxyzo can assist them in obtaining these discounts and loans.
- Customers or NBFCs pay the Bank / NBFC directly for the invoice discounted by the due date at this point. This is how the borrower will be able to repay the loan.
Also read:- Tips for Manage Long Term Personal Loan
Eligibility Criteria For Sales Bill Discounting:
Different financial institutions have different eligibility criteria, however most of the parameters that are common among all are:
- A company should have been in business for at least 3 years.
- Specifying the exact due date for an outstanding payment.
- Individuals must be between the ages of 24 and 65.
- The company’s health should be adequate.
Some commonly used documents across different financial institutions are :
- Passport-sized photographs.
- Valid Identity Proof (Aadhar Card, PAN Card, Passport, Voters Identity Card, or Driving License).
- Bill of exchange/ Bills of Invoices, Identity Proof of the business.
- Valid Address Proof of the business – Telephone or Electricity bill, not older than 3 months
- Receipted Challan as proof of delivery/documents of ownership to goods as proof to the dispatch of goods.
Advantages Of Sales Bill Discounting:
- When applying for a loan, collateral is one of the most significant considerations, but sales bill discounting is one of the few products that allow you to access cash flow without pledging collateral or assets, thus making it essential in SME finance considerations.
- It boosts working capital and improves cash flow.
- Businesses can get liquid cash as soon as an invoice is issued, which is far faster than alternative credit options.
- Sales Bill Discounting shortens the time it takes to get money by reducing the time it takes to obtain things or services, create a bill, wait for payment, and finally receive money in liquid currency.
Because of the documentation and assurances involved, Sales Bill Discounting is one of the better solutions when compared to acquiring a loan from a financial institution. When opposed to securing a loan, the eligibility conditions for a sales bill reduction are less severe, and the documentation process is also easier. Overall, Oxyzo’s sales bill discounting is useful, especially for SME finance assistance, especially for short term, with no collateral.