Sometimes some customers delay payments & hands out at the last minute, which puts an undue burden on small enterprises to fulfill their other business opportunities& orders. For example, Sushil Kumar, a small business owner, runs crockery manufacturing company & just delivered a large order for a supermarket. Sushil will be paid two months later, according to the sales agreement. The only problem is that he lacks the finances to fulfill the new order’s raw material requirements. Even though payment from the first order is guaranteed, he risks losing the second if he fails to produce it by the deadline. At times of crisis like this, sales bill discounting or invoice discounting services provided by Mynd Fintech come as a savior and aid a company’s future growth.
What is Sales Bill Discounting?
Sales bill discounting is a short-term facility in which individuals or business owners borrow money from banks and non-bank financial companies (NBFCs) due to late payments from customers who are unable to manage their cash flow. It is an important tool for managing and increasing a company’s working capital. Sales Bill discounting is a sort of debtor finance. It is a process used by business owners to free up cash flow by selling unpaid bills of invoices to a third party as collateral for a loan.
How does Sales Bill Discounting work?
The borrower company sends an accounts receivable report to the sales discounting finance company at least once a month. Lenders or non-bank financial companies (NBFCs) evaluate this data before deciding how much debt to lend the borrower. The process of Sales Bill/ Invoice Discounting:
- Goods and services trading – The borrower or small business offers goods or services to vendors or customers in the first phase.
- Invoice raising- The borrower then sends out invoices for the payments he expects to receive from clients or vendors within 90 days.
- Discounting of Bill – The borrower then goes to the bank to get the bills lowered or to secure a loan against the invoices raised. After a little fee is deducted, the bill is discounted. However, for MSME companies that are unable to go directly to major financial institutions, Mynd Fintech here helps them to secure these kinds of discounts & loans.
- Collection – At this stage, Customers or pay the Bank / NBFC directly for the invoice discounted by the due date at this stage. The borrower will be able to repay the loan in this manner.
Eligibility Criteria for Sales bill discounting?
- An enterprise should be in operation for at least 12 months.
- Specifying the exact date on which the unpaid payment is due.
- Age Limit (Individuals): 24-65 years of age.
- The business health should be good enough.
Documents required:
- 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 evidencing dispatch of goods.
Advantages of Sales Bill discounting:
- Collateral is one of the most important factors to consider when applying for a loan, but sales bill discounting is one of the few products that allow you to access cash flow quickly without pledging collateral or assets.
- It increases the working capital & helps the cash flow.
- Liquid cash is readily available to businesses as soon as an invoice is issued, which is far faster than other credit options.
- Sales Bill discounting reduces the amount of time it takes to get money as it takes far too long from obtaining products or services to create a bill, waiting for payment, and ultimately receiving money in liquid currency.
Conclusion
Sales Bill Discounting is one the best options as compared with taking a loan from a financial institution because of the paperwork & assurances involved. The eligibility criteria required to get a sales bill discount are not stringent as compared to getting a loan, and even the documentation process is hassle-free. Overall, Sales Bill Discounting by Mynd Fintech is beneficial, especially for MSMEs for short-term financial aid on zero collateral.
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