Invoice discounting offers a great investment opportunity for investors with good returns in 30-90 days with low risk. Invoice discounting returns are generally higher compared to traditional investment routes.
What is invoice discounting?
Invoice discounting is a supplier financing technique wherein unpaid invoices are leveraged by the vendors to get paid by the buyer earlier than the due date.
For instance, when a manufacturer orders its supplier for raw materials, the manufacturer won’t make the total payment for the raw materials. The manufacturer would then send an invoice to the supplier committing the full payment for the raw materials. The due amount would be paid to the supplier as per the due date, say 30-90 days. With this commitment, the supplier would supply the raw materials to the manufacturer. But if the supplier needs the money immediately, the supplier could, through invoice discounting, request early payment from the buyer, in exchange for a discount on the invoice amount. The manufacturer can then pay the supplier via its own treasury funds, or use external financiers such as banks to finance the payment.
Thus, the vendor receives an instant payment for a significant percentage of the billed amount with invoice discounting as soon as the invoices are issued and approved by the buyer. This greatly assists the cash flow management of a supplier.
How can invoice discounting act as an investment for businesses?
With businesses constantly on the lookout for investing their idle funds, alternative investment routes have steadily gained traction. Every business investment aims to offer handsome returns while safeguarding the funds. Invoice discounting provides a great investment avenue for businesses to utilise their idle funds and generate high profits while protecting themselves against economic fluctuations and market volatility. The following are a few reasons why businesses should invest in invoice discounting:
Short-term investment – Businesses could invest their funds and earn attractive returns in 30-90 days.
Minimal risk– Invoice discounting offers high returns with minimal risk compared to other investment avenues, making it an ideal option for diversifying a company’s portfolio.
Attractive returns – Compared to traditional investment routes like FDs, RDs, or debt and liquid mutual funds, invoice discounting returns are higher.
Integration with technology – Today, businesses can use technology-enabled platforms that offer a hassle-free investment experience. Some of these platforms offer seamless end-to-end investment solutions with professional management and a cohesive digital investment experience with just a click of a button.
Portfolio diversification – Invoice discounting offers a great investment option for diversifying the business investment portfolio. A business should try to diversify its investment portfolio with a healthy mix of investments in FDs, debt instruments, and invoice discounting.
Tips for higher returns through invoice discounting
Choosing the right platform for invoice discounting – A few technologies enable invoice discounting platforms that offer the full gambit of invoice discounting services. On some of these platforms, businesses could find financial reports, shareholders’ details, internal rate of return (IRR), credit history, etc., to better understand before investing.
Be aware of the fees – Some invoice discounting platforms charge fees from both the supplier and the investor. These charges cover the charges related to legal documents, deal processing charges and other operational charges. Such fees should be disclosed in the agreements, and businesses must be aware of them upfront before investing.
Large investments – This investment route is more suited for big investments, businesses that can put a lump sum amount, a very small-scale investment may not be appropriate for this form of investment.