Everything you need to know about Bill Discounting

08 November, 2023

As a business owner, you often require short-term financing to ensure that your operation runs smoothly. The best way is to free up the cashflows trapped in bills for which you have yet to receive payments from the other party. You can use your unpaid invoices to obtain financial aid from banks or other institutions. This process is called Bill Discounting and can be of immense help when your business is in a financial crunch.

What is Bill Discounting?

Bill Discounting a helpful way for businesses to get money quickly when they need it using their unpaid invoices. Let’s say you are the seller of certain goods. You send invoices to your buyer and are awaiting payment. However, you are in need of urgent funds. So, you go to the bank and get funding against the unpaid invoices. Later, when the invoice payment is due, the buyer who was supposed to pay you for your goods will pay the bank instead. Bill Discounting is a way to get the money you are owed sooner and keep business operations running smoothly.

Do keep in mind that the bank will apply a discount charge, or commission, to the invoice amount. To better understand the process, take a look at the example given below:

Business owner A sells his goods to Mr B for ₹50,000 on credit. Mr B agrees to pay the sum two months after the date of purchase. However, owner A requires urgent cash flow and cannot wait that long. He can then discount the bills with a bank for two months prior to the due date. If the bank is offering a discount rate of 4%, then the owner will receive ₹48,000 after paying a commission of ₹2,000.

Advantages of Bill Discounting

The Bill Discounting facility can benefit both the trader/vendor and the purchaser. The benefits enjoyed by both parties are listed below.

For vendors:

1. They can enjoy improved working capital and cashflow without balance sheet disturbances.

2. NIL security/guarantee is required.

3. They can access credit quickly and conveniently.

4. They can enjoy higher loan amounts as the margin requirement is typically much lower than other credit facilities.
   
   

For purchasers:

2. They can benefit from improved negotiations with vendors and suppliers.

3. They can enjoy an optimised supply of raw materials.

4. They can strengthen their relationship with supply chain partners.
   
   

The Bill Discounting process

The steps involved in the Bill Discounting process are as follows:

3. MSMEs (Micro, Small & Medium Enterprises) and supply chain entities offer goods and services to larger corporates and raise invoices.

4. The enterprises can then bring their invoices to lenders and monetise their unpaid bills.

5. The submitted invoices are converted to cash and credited to the MSMEs at discounted rates within a few working days.
   
   

What is the eligibility criteria for Bill Discounting?

If you want to enjoy the benefits of Bill Discounting, you must meet the following eligibility criteria set out by banks and financial institutions:

4. The documented contract and payment agreement should be agreed upon by both parties.

5. You must also submit the invoice raised by the customer for the pending payment.

6. The fixed date upon which the payment will be due, as promised by the customer, must be clear.
   
   

Now that you know what is meant by Bill Discounting and all its associated benefits, make sure your business continues to run smoothly by relying on this. HDFC Bank offers Bill Discounting that is tailored to suit your unique business requirements. To know more, reach out to us at corporatebanking@hdfcbank.com.


​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances.