Geetha_M

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Invoice Discounting And How Does It Work

• By geetha (financial advisor)

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• All businesses inevitably face cash crunches from
  time to time that usually spells trouble.
• While larger businesses search and utilise all
  viable solutions to keep their businesses afloat,
  small businesses often dont have many options to
  choose from.
• Such businesses need financing mechanisms that
  are more flexible and specifically cater to their
  cash flow needs.

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Invoices as Pseudo Collateral

• Traditional Finance Options for businesses
  require collateral in the form of assets like
  property, machinery, etc. While availing invoice
  financing services like Invoice Discounting,
  there is a zero-collateral requirement as the
  benefit is transferred between the parties solely
  on the basis of invoices for already-delivered
  services/products.

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Why Invoice Discounting?

• Small businesses either provide services or
  products to big corporates. These small
  businesses thus form an integral part of Supply
  Chain for big corporates. Once the goods or
  services are supplied, these small businesses
  raise invoices to receive payment for their
  services and goods.

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How Does It Work?

1. Small Business raises Invoices against the Big
   Corporate (Enterprise/Blue-chip Company) for the
   services provided/goods supplied.
2. To avoid the delay, they can bring their invoices
   to Invoice Discounting companies such as lending
   cart, KredX, for confidential invoice
   discounting.
3. In 1-2 days, these invoices are converted to cash
   and transferred to small businesses at a pre-set
   discounting rate and tenure (normally ranging
   from 30-120 days).
4. Small Business completes multiple business cycles
   in this tenure and upon release of payment from
   corporate, repays the Invoice Discounting Service
   Provider.

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Thank you

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