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It is a trade-related activity in which a company’s unpaid invoices which are due to be paid at a future date are sold to a financier (a bank or another financial institution). In bill discounting, the business trades the company's unpaid invoices to gain access to short-term financial assistance and maintain the working capital. It is mostly pertinent in cases when a buyer purchases goods from the seller, and the payment is made through a letter of credit. This process is also called “Invoice Discounting”.
- Bill discounting is advantageous to businesses, banks, finance companies, and investors. Businesses benefit their cash-flow in-turn helping them stabilize growth and fund business expenditure.
- Cash flow: Businesses being dependent on the cash flow to sustain their business can easily rely on this quick financial aid to access speedy funds and continue to flourish. This process quickens money inflow— profiting the organization in expanding deals, seeking after development.
- Instant access to cash: Bill discounting is a more efficient, faster way of assessing working capital as it is hassle-free and does not involve lengthy documentation procedure. With banks, businesses can secure financial assistance in just 24 to 72* hours.
- No collateral involved: There is no requirement to keep any asset as security as the unpaid invoice is considered as the collateral itself.
- No debt incurred: Bill discounting helps in saving tax liability. The chances of a company suffering any loss or damage are almost nonexistent when compared to conventional financing frameworks.
- No impact on business sheet: Bill discounting service offered by banks does not impact the balance sheet of the business as it is an off-the-book process.