Saving Money on Your Purchase Bill Discounting System
You can call it Invoice Discounting, bills discounting or purchase of bills all is same. Purchase bill discounting is the best way to get working capital finance for the suppliers on credit. Actually, bill discounting is an agreement in which the seller recovers an amount of sales bill from the financial mediators prior to it is due. These mediators charge a fee for this service.
MEANING OF PURCHASE BILL DISCOUNTING OR INVOICE DISCOUNTING
If we technically speaking then invoice discounting is all about the selling of unpaid invoices to the service providers before the last date of payment at a price which is less than the total invoice amount. And this difference of total bill amount and the amount paid is considered at the fees of purchase bill discounting companies.
The statements or invoices under an invoice discounting are officially the ‘bill of exchange’. A bill of exchange is an unfixed mechanism which is negotiable mere by sanctioning the name. For instance, our currency is work as a bill of exchange. Currency notes offer a fixed value mentioned over it to the bearer of the instrument. And in bill discounting, these bills can be either to be paid to the bearer or to be paid to order. For that reason, after discounting the invoices, a financial institute can additionally get the bill discounted from other financial institutes in case of immediate cash flow requirement.
WHY is INVOICE DISCOUNTING?
Generally, buyers and sellers of goods have contradictory purposes. The seller wants to get paid right away and the buyer wants a long credit period as much as the seller can offer. In this condition, Invoice Discounting comes as a win-win condition for both parties. Here the seller gets instant working capital almost instantly on payment of charges and can satisfy its clients with credit period. The purchase bill discounting is a simple way of getting immediate funds. There are no hassles of approvals etc.
EXCLUSIVE FEATURES OF BILL DISCOUNTING
CREDIT EVALUATION
A bank will consider the repute of the seller in addition to the past payment records of the purchaser who needs to pay to the bank.
BANKING PARTNER PREFERRED
The purchaser must have a good bank additionally which can effort in your support if it approves the bill of exchange. This will make sure your bank that the paying party is trustworthy and two such signatures of good reputation companies or financial institutions are necessary for discounting as a rule.
USANCE BILL
The invoice has to be applicable within the date of time permitted by practices for the bill date and its reimbursement. This time frame can fluctuate from 15 days to two months. This time is called as “Usance Period”.
BANK TO BANK DEALING
The deal takes place between banks where the corroborating bank or the buyers’ bank does not friendly the seller of the repayment instruction but deals with his bank openly to determine the discounting terms.
PURCHASE BILL DISCOUNTING PROCEDURE
The procedure of bill discounting is easy and practical.
- The supplier sells the goods on credit and raises invoice on the purchaser
- The purchaser gets the bill. By taking, the buyer admits paying before the due date.
- Supplier seeks the financing company to get a discount.
- The financing company checks the authenticity of the bill and creditworthiness of the purchaser.
- The accounts receivable financing company provides the fund to the supplier after deducting right margin, concession, and fee as per the rule.
- The supplier gets the funds and uses in the current requirement of the business.
Comments