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Are you Eligible for Invoice Discounting?

By Annapoorna

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Updated on: Aug 1st, 2022

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3 min read

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Invoice discounting is one of the most favoured avenues for liquidating trade receivables with the help of your due invoices. Invoice discounting allows organisations to obtain credit by keeping their trade receivables as collateral. Invoice discounting is efficient and effective as businesses can obtain advance cash due from their customers without waiting till the due date.

Eligibility Criteria to go for Invoice Discounting

The invoice discounting process is simple. The eligibility criteria for invoice discounting varies from company to company. Below is a checklist to help businesses understand the invoice discounting eligibility:

  1. A business must offer credit terms to its customer. Such credit terms should be mentioned on their invoice itself. 
  2. Sales contracts and payment schedules should be written and endorsed by both the business and its customers.
  3. The company’s customer(s) must have raised a Purchase Order
  4. The business has fulfilled its obligation of providing the goods or services stated in the invoice.
  5. The invoice must have been raised and accepted by the customer, but the payment for the same hasn’t been received.
  6. Further, there should be a fixed date for the outstanding payment
  7. Other considerations include:
  • Annual Turnover and Volume
  • Business Vintage
  • Financial Stability
  • Business Positive Net worth
  • Business Profitability
  • Repayment history and capability
  • Previous loan defaults, if any
  • Credit rating of the business

The business then needs to identify and choose a reliable invoice discounting platform. However, it is important to note that an invoice discounting firm will not accept all invoices. The firm may have internal policies that could bar certain companies that do not meet its requirements, or it could be due to a customer risk profile. Check with the invoice discounting company as their risk appetite could vary from one another.

How fast do you Require the Funds?

The speed at which the invoice discounting firm could release funds varies from a few days to several weeks. One should check the onboarding requirement beforehand. Depending on the urgency a business must pick the appropriate invoice discounting platform.

Is Invoice Discounting good for my business?

Invoice Discounting will work for your business if you have:

  • Customers who make payments on or before time.
  • Less bad debts.
  • Your business meets the minimum turnover criteria.
  • Customers have a minimum 30-day credit period.
About the Author

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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