Minimal risk and attractive returns make invoice discounting an ideal option for a company in the short term to diversify its portfolio. This article focuses on India’s rules and regulations governing invoice discounting practices.
The Reserve Bank of India (RBI) formed a working group on Discounting of Bills by banks in 1999 to examine the possibility of widening the scope of bill discounting and extending the facility even to the services sector, given its traction and growth.
Apart from a few private players, the Reserve Bank has allowed Receivables Exchange of India, Trade Receivables Discounting System (TReDS) and M1Xchange to operate the online bill discounting platforms under its TReDS initiative. Combined, these platforms have discounted bills amounting to Rs.18,000 crore in the last fiscal year.
The option to avail of the benefits of invoice discounting is open to all businesses selling goods or services to customers, with the credit period ranging between 30 and 90 days. The following are the key players in invoice discounting:
With the eruption of Fintech companies, trading invoices has become as easy as raising a loan. A few e-discounting platforms offer invoice discounting services in India that businesses can opt for to liquidate their invoices or invest in them for good returns with minimal risk.
The RBI regulates all these platforms under the Payments and Settlement System (PSS) Act 2007. A supplier uploads its invoices onto the invoice discounting platform, which interested financiers then evaluate. The funds are transferred to the supplier as per the agreement.
Since the inception of the New Bill market scheme, the Reserve Bank has introduced several measures for encouraging and widening the use of bills of exchange. Some of the measures include: