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Invoice discounting process

Updated on :  

08 min read.

Invoice discounting is a method of revenue-based financing which leverages a creditor’s unpaid invoices to raise quick working capital. This article discusses in detail what invoice discounting is, the prerequisites for onboarding and the steps involved to avail the facility.

Brief introduction to invoice discounting

Invoice Discounting refers to the process of leveraging unpaid invoices to gain instant access to capital by offering buyer companies a discount in exchange for early payment of their dues. The amount paid is lower than the actual invoice amount, and thus this process is called invoice discounting. The increased cash flow helps in accelerating additional growth. Businesses that commonly use invoice discounting are involved in manufacturing, construction, wholesale, transportation, and other related industries.

Prerequisites for invoice discounting

  1. Businesses must sign up with an invoice discounting platform to initiate the process. Both the parties must agree to the terms and conditions and the time frame.
  2. The lending institution may also ask for a purchase order, invoice issued to the customer, payment details, etc.

How to onboard for invoice discounting?

The business entity must share all the financial information and other related reports for availing the facility. Various discounting platforms are available in the market that assist both the buyer and its suppliers. The first step is to sign up on one of the invoice discounting platforms and submit the required documents. On successful verification, the business can onboard the discounting platform. Businesses can now upload their unpaid invoices and raise funds against them. 

Clear Invoice Discounting, for instance, provides a fast and easy onboarding invoice discounting platform.

Steps for invoice discounting in detail

  1. Sale of goods: The first step in invoice discounting is the actual sale of goods from the vendor to the buyer.
  2. Issue of Invoices: Invoices are then issued, with the details of the payment date and other terms and conditions.
  3. Request for early payment: The vendor company then logs in to the invoice discounting platform and submits request for early payment, offering a discount on the amount due.
  4. Request approved by the buyer: The buyer then goes over the same and accepts the early payment request.
  5. Determination of source of payment: The buyer then determines the source of payment for the early payment. These could be treasury funds, bank credit, etc.
  6. Payment processing: The payment is then processed through the invoice discounting platform.