The Ultimate Guide to Applying for Bill Discounting

Bill discounting is a financial solution that provides quick liquidity for businesses. It is a process where a company sells its outstanding invoices to a financial institution at a discounted price, usually at a rate lower than the face value of the bill. The financial institution then pays the company an advance amount and takes over the responsibility of collecting the payment from the customer.

Bill discounting has become an essential source of funding for many businesses, especially in the current economic scenario where cash flow is a significant concern. It is a fast, flexible, and convenient way to access working capital without having to wait for customer payments.

The bill discounting process can be broken down into the following steps:

1. Documentation – The company has to provide the financial institution with all the necessary documents, such as financial statements, invoices, purchase orders, delivery challans, etc.
2. Assessment – The financial institution be it an NBFC or a bank, will assess the creditworthiness of the company’s customers and the validity of the invoices.
3. Discounting rate – Based on the assessment, the financial institution will offer a discounting rate to the company. This rate is usually a percentage of the invoice value, and the lower the rate, the lower the cost of financing.
4. Advance payment – Once the discounting rate is agreed upon, the financial institution will provide the company with an advance payment, which is a portion of the invoice value.
5. Collection – The financial institution will then take over the responsibility of collecting the payment from the customer. The company will receive the remaining balance, minus the discounting charges, once the customer has made the payment.

There are two main types of bill discounting. One is factoring that involves the financial institution taking over the entire responsibility of credit management and collection, another is invoice discounting that involves the financial institution providing the advance payment.

Bill discounting rates in India vary depending on the financial institution, the type of bill, and the creditworthiness of the company’s customers. The rate can range from anywhere between 2% to 4% per month.New-age financing companies like Oxyzo offer affordable bill discounting rates.

Applying for bill discounting is a straightforward process. Here are the steps to follow:

1. Research – Research different financial institutions that offer bill discounting services and compare their rates, services, and eligibility criteria.
2. Prepare documentation – Prepare all the necessary documentation, such as invoices, purchase orders, delivery challans, etc.
3. Submit application – Submit the application along with the necessary documentation to the financial institution.
4. Assessment – The financial institution will assess the creditworthiness of the company’s customers and the validity of the invoices.
5. Agreement – Once the financial institution has assessed the application, they will provide the company with an agreement, detailing the discounting rate, advance payment, and any other relevant terms and conditions.
6. Advance payment – Once the agreement has been signed, the financial institution will provide the company with an advance payment, which is a portion of the invoice value.
   

Also read:- What is Debt Counseling, and Who Qualifies For This?

In conclusion, bill discounting is a quick and convenient way for businesses to access working capital. By following the above steps, companies can easily apply for bill discounting and take advantage of this financing product. However, it is important to choose a reputable lender and compare their rates and services before applying. By doing so, businesses can ensure that they get the best deal and secure their financial future.