Overview

Invoice discounting is a financial arrangement in which a company obtains a short-term loan or advance from a financial institution using its outstanding invoices, or accounts receivable, as collateral. Under this agreement, the company gets a portion of the invoice value up front, usually between 70 and 90 percent, and the remaining sum (less fees) is paid after the consumer settles the invoice. This enables companies to obtain working capital right away while they wait for their clients to pay.

Purpose:

• Improve Cash Flow: Helps businesses maintain a steady cash flow by providing quick access to funds against unpaid invoices.
• Business Growth: Provides funds for day-to-day operations, allowing businesses to invest in growth opportunities without waiting for customer payments.
• Bridge Payment Gaps: Useful for companies with long payment cycles, enabling them to manage expenses like payroll, inventory, and bills without delay.
• The repayment period is short-term, ranging from 30 to 180 days, depending on the invoice terms.
• Interest rates range from 8% to 18% per annum, depending on the lender and the borrower's creditworthiness.
• Some lenders charge a processing fee (0.5% – 3%) on the total invoice amount.
• Faster processing than traditional loans, with funds disbursed within 24-72 hours of invoice verification.
• Helps businesses maintain liquidity without waiting for customers to clear invoices.
• Ideal for SMEs, manufacturers, and service providers with delayed receivables