Top Invoice Discounting Platforms in India

Invoice discounting is a medium through which a company can arrange for funds. This facility is an alternative to bank overdrafts or short-term loans.

A company can finance approximately 70% to 100% of outstanding sales invoices. This helps the applicant company keep cash flow intact, and they can fund their future projects or pay off their creditors. In this article, we will discuss on how the Invoice Discounting Platforms work and some of the top discounting platforms in India.

Introduction to Invoice Discounting

Invoice discounting is a financial service where a vendor/supplier gets paid against an invoice earlier than the agreed credit period. The amount paid will be lower than the actual invoice amount. Hence, the process is called invoice discounting. The discount rate is the cost of getting an early payment for the vendor. The amount of discount depends on the period for which the early payment is sought, as well as other factors such as the cost of capital for the buyer/financier. 

What is an Invoice Discounting Platform?

Invoice discounting platforms enable enterprises to give their vendors the opportunity to request early payments on their customer invoices. This helps vendors to manage their cash flows better as well as goes a long way in strengthening business relationships with supply chain partners. Invoice discounting platforms also enable buyer enterprises to choose to fund these early payments using treasury funds, banks, or TReDS platforms. Let’s understand how this works.

An invoice discounting platform provides a facility for vendors to discount their invoices and get early payments, as well as for buyers and financiers to finance such invoices. Vendors get easy access to affordable, collateral-free credit. Buyers can finance early payment requests via banks and TReDS portals, as well as by using excess treasury funds, ultimately increasing their EBITDA.

How Do Invoice Discounting Platforms Work?

Invoice discounting platforms act as a bridge between the vendors and the buyer enterprises or financiers. In simple words, it is like an online marketplace that connects businesses with finance providers that offer invoice discounting services. 

Here's how an invoice discounting platform works:

1. Registration: A buyer enterprise registers with the invoice discounting platform and provides information about the invoices they want to finance.
2. Vendor Onboarding:  The buyer enterprise shares the details of its vendor base with the platform to onboard them on the same.
3. Invoice verification: The platform then verifies the authenticity and validity of the invoices to ensure they are genuine and eligible for financing. This is taken care of once the business’ ERP has integrated with the invoice discounting platform.
4. Funding offer: The buyer enterprise makes funding offers to the vendor. They can choose to fund these invoices through banks or TReDS platforms (also known as financiers). They can also make the payment from their own funds if they wish to use their treasury funds.
5. Acceptance: The vendor reviews the funding offers and selects one that best meets their needs. They accept the offer, and the buyer enterprise/financier provides an immediate cash advance to the business.

What are the Advantages of an Invoice Discounting Platform?

The top benefits of using an invoice discounting platform for buyer enterprises are:

• It provides a seamless, digital process that eliminates the need for any manual intervention and lengthy paper-based documentation
• Enterprises can get an assured increase in EBITDA
• Enterprises enable stronger vendor relationships by helping suppliers optimise their cash flows and working capital  

Top Invoice Discounting Platforms

TReDS – M1xchange, RXIL, ATreds (Invoicemart)

M1xchange

M1xchange is a digital platform to sell your outstanding sales invoices to financial institutions (for example, banks/NBFCs) approved by the Reserve Bank of India.
 ‘M1xchange’ was set up under the Payment and Settlement System Act, 2007. The platform works on a PAN India basis to discount invoices and exchange bills for MSMEs.
 This exchange enables MSME to secure finance on without recourse basis. The key participants include MSMEs, corporates, PSUs, government departments, banks and NBFCs. 
 

RXIL

RXIL was incorporated as a joint venture between SIDBI (Small Industries Development of India) and NSE (National Stock Exchange of India).
 This institution aims to provide financing solutions through invoice discounting, which helps in sustainable and economic growth of Micro, Small and Medium Enterprises.
 

ATREDS (Invoicemart)

ATREDS (Invoicemart) is a joint venture between Axis Bank and MJunction Services.
 Invoicemart is a digital platform for MSME suppliers and corporate buyers to connect with financiers. This platform provides collateral-free capital to MSMEs through factoring, which resolves their capital challenges.
 Their finance partners include IDFC Bank, Axis Bank, Bank of Baroda, Standard Chartered and State Bank of India.
 

Banking platforms

Banks also provide invoice discounting services to their key corporate customers. Here, the bank acts as a financier directly to their customers without the role of any intermediaries or platforms.
 Banks provide customised financing solutions to their customers. This helps them to meet their working capital requirements instantly.
 

Fintech platforms

Clear Invoice Discounting is one of the private platforms providing invoice discounting services to their vendors. The platform focuses on the quick onboarding of vendors and works on completely paperless operations.
 The platform also provides multiple financing modes through invoice discounting marketplaces and banks.
 An enterprise can also park its idle funds in these platforms, which help them earn higher returns than other financial instruments.

How to choose the best platform for invoice discounting?

A company should consider the following parameter before opting for invoice discounting:

1. The cost of invoice discounting, the charges/fees of financiers are higher than normal finance.
2. The company, not the debtors, is responsible for paying the financers.
3. The financier or the platform provides prepayment and other facilities.
4. The company should evaluate the ease of using the platform. Its acceptance will depend on how user-friendly the platform is.