Bill discounting is a financial solution that helps businesses unlock immediate cash from their sales invoices. It’s a common practice in trade and commerce, especially for businesses that sell goods or services on credit. Instead of waiting for the credit period to end, companies can present their bills or invoices to a financial institution or bank and receive a discounted amount upfront. This allows them to maintain cash flow and continue daily operations without interruption.
Bill discounting is a process where a business sells its accounts receivable (bills or invoices) to a bank or a financial institution at a discount. In simple terms, it means the seller of goods/services receives the payment earlier than the credit period agreed upon with the buyer, but a small fee or interest is deducted by the financier for providing this advance.
For example, if a company sells goods worth ₹1,00,000 to a buyer on a credit term of 60 days, instead of waiting for two months to receive the money, the seller can approach a bank and get the invoice discounted. The bank might pay ₹95,000 today and collect the full ₹1,00,000 from the buyer on the due date. The ₹5,000 difference is the discounting charge, which is the bank’s income for offering the early payment.
The process of bill discounting usually involves the following steps:
Invoice Creation: A seller issues a bill or invoice to the buyer after selling goods or services on credit.
Submission to Bank: The seller submits the bill along with relevant documents to the bank or financial institution for discounting.
