Invoice discounting is probably the simplest form of invoice finance. As with all types of invoice finance, with invoice discounting you sell unpaid invoices to a lender and they give you a cash advance that’s a percentage of the invoice’s value. Invoice discounting provides a great investment option while protecting yourself against market volatility while reaping high returns. While invoice discounting is meant to take a loan only against the unpaid invoices up to next 90 days
Features of Invoice discounting
There is mainly two features, they are;
- Discount charge
The margin between advance granted by the bank and face value of the bill is called the discount, and is calculated on the maturity value at rate a certain percentage per annum.
For discounting on bill, the credit period may vary from 30 days to as high as 120 days. Based on the credit value of the buyer, the bank carries out the discounts of the amount.
- To improve cash flow and the working capital cycle quickly, invoice discounting can be used.
- The payments you receive under an invoice discounting arrangement can be used for almost any business purpose, such as improving working capital, reducing debts, funding expansion, Etc.
- There is no legal obligation for you to tell your customers that you have entered into an invoice discounting arrangement.
- Because of the cash flow improvements invoice discounting offers, this should hopefully allow early repayment.