In the fast-paced world of business, maintaining a healthy cash flow is crucial for smooth operations. Sale Bill Discounting offers a smart and effective way for businesses to access funds quickly by leveraging their sales invoices. This method allows companies to secure immediate liquidity without waiting for the buyer to make payments on their invoices. In this blog, we’ll explore Sale Bill Discounting in detail.
Sale Bill Discounting
Sale Bill Discounting is a short-term financing option where a business can sell its accounts receivable (sales invoices) to a bank or financial institution at a discounted rate in exchange for immediate cash. Instead of waiting for customers to settle their outstanding bills (which can take 30, 60, or 90 days), businesses can receive a significant portion of the invoice amount upfront. The financial institution then collects the payment from the customer on the due date.
For example, if a business issues a sales invoice of ?100,000, they can sell the invoice to a bank at a discounted rate, say 85% of the invoice amount, and receive ?85,000 immediately. The bank will collect the full ?100,000 from the customer when the payment is due.
Invoice Generation: The business raises an invoice for goods or services provided to a customer.
Discounting Application: The business submits the invoice to a financial institution (bank or NBFC) for discounting.
Verification: The institution verifies the authenticity of the invoice and evaluates the creditworthiness of the buyer (customer).
Advance Disbursal: Once approved, the business receives an advance amount, typically around 80-90% of the invoice value.
Payment Collection: On the due date, the customer pays the full invoice amount to the financial institution.
Balance Settlement: The institution releases the remaining amount to the business, minus any interest and fees.
Improved Cash Flow: Businesses can access immediate funds instead of waiting for customers to pay their invoices.
No Collateral Required: The invoice itself acts as collateral, so no additional security is needed.
Quick Access to Funds: This process is much faster than traditional loans, with funds being disbursed in as little as 24-48 hours.
Flexibility: It allows businesses to focus on growth and operations while managing their day-to-day expenses without worrying about payment delays.
No Debt Accumulation: Since it’s not a loan, businesses don’t incur long-term debt obligations.
Sale Bill Discounting can benefit a wide range of businesses, including:
Small and Medium Enterprises (SMEs)
Manufacturers and Suppliers
Exporters and Importers
Wholesalers
Service Providers
Any business that has customers with a regular payment schedule and a reliable track record can leverage Sale Bill Discounting to improve liquidity.
Discount Rate (Interest Rate): Typically ranges from 8% to 15% per annum. The rate is based on the creditworthiness of the buyer and the invoice’s payment terms.
Processing Fees: Financial institutions may charge a processing fee, which is usually around 0.5% to 2% of the invoice amount.
Penalties for Non-Payment: If the buyer defaults on the payment, the business may need to repay the discounting amount, along with any penalties.
To avail Sale Bill Discounting, businesses typically need to provide the following documents:
KYC Documents (for both business and authorized signatories)
Sales Invoices
Bank Statements (for the last 6-12 months)
Financial Statements (Balance Sheet, Profit & Loss Account)
Business Registration Documents (such as GST registration)
These documents help financial institutions verify the legitimacy of the business and the invoices being discounted.
While Sale Bill Discounting and Factoring are both financial tools used to access funds based on outstanding invoices, there are key differences:
| Feature | Sale Bill Discounting | Factoring |
| Scope | Involves only specific invoices | Covers a larger pool of receivables |
| Ownership of Receivables | The business retains ownership of the receivables | The factoring company takes ownership of receivables |
| Involvement in Collections | The business collects payments directly from the customer | The factoring company manages collections |
| Recourse | Business is liable for non-payment | Non-recourse factoring: The factoring company absorbs the risk of non-payment |
Q1. Can I use Sale Bill Discounting for international sales invoices?
Yes, Sale Bill Discounting can be used for both domestic and international sales invoices, with specialized facilities available for export bills.
Q2. How quickly can I get funds after submitting the invoice?
Typically, businesses can receive funds within 24-48 hours after submitting the invoice to the financial institution.
Q3. Can startups avail Sale Bill Discounting?
Yes, startups with valid sales invoices and creditworthy customers can avail Sale Bill Discounting, even if they don't have a long credit history.
Q4. Is Sale Bill Discounting available for all types of invoices?
Sale Bill Discounting is typically available for invoices issued to creditworthy customers with a clear payment history. Invoices that are disputed or involve high-risk customers may not be eligible.
Q5. Can Sale Bill Discounting be used for short-term needs only?
Yes, Sale Bill Discounting is generally used for short-term financing needs, providing businesses with quick access to funds for operational expenses.
Conclusion
Sale Bill Discounting is an effective financial solution for businesses looking to improve their cash flow and maintain liquidity. By leveraging their accounts receivable, businesses can gain immediate access to funds, ensuring that operations run smoothly without being dependent on the long waiting periods associated with customer payments. Whether you’re a small business owner or a large enterprise, Sale Bill Discounting can be a useful tool to bridge working capital gaps and keep your business moving forward.
Written by:
CA Vikas Jain
CA Vikas Jain - Our Mentor
9863-02-02-02