A steady increase is being noted in the number of enterprises meeting working capital needs and improving cash flow position by availing credit based on vendor bills or sales invoices. A lot of small business owners ask what is invoice discounting and benefits of vendor bill discounting. Unlike conventional business loans, vendor bill discounting enables entrepreneurs to avail credit quickly based on value of unpaid invoices. There are a number of lending institutions that provide credit ranging from 75% to 95% of the value of unpaid invoices. Also, some lenders enable business owners to avail credit within 48 hours by discounting unpaid invoices. There are also a number of reasons why many entrepreneurs prefer invoice or vendor bill discounting to conventional business loan products.
Benefits of Vendor Bill Discounting
Quick Access to Credit
Often small business owners explore ways to avail credit without lengthy credit appraisal process. The lending institutions consider several factors before providing credit to small businesses. But vendor bill discounting, unlike business loans, does not require borrowers to meet strict credit requirements. The business owners can avail credit quickly by discounting their unpaid invoices. There are even a number of lending institutions that provide make credit available to entrepreneurs within 48 hours based on value of unpaid invoices.
No Need to Pledge Assets as Collateral
As highlighted by several studies, small businesses and startups often find it challenging to access credit. Many lending institutions even require small business owners to pledge personal or business assets as collateral to avail secured business loans. Vendor bill discounting enables entrepreneurs to avail credit simply by discounting their unpaid invoices. Hence, it becomes easier for small business owners to avail credit without pledging any asset as collateral.
Release the Locked Cash
Unlike term loans, vendor bill discounting does require business owners to make monthly repayments. The entrepreneurs can avail a lump sum amount of money based on the value of unpaid invoices. At the same time, business discounting enables business owners to convert their current assets like unpaid invoices or goods received notes into liquid assets. The entrepreneurs can even meet immediate financial needs by unlocking the cash stored in the form of unpaid invoices.
Improve Cash Flow Situation
The small businesses and startups must maintain a positive cash flow situation to meet their short-term financial obligations on time. Often adverse cash flow positions make it difficult for entrepreneurs to make payroll, purchase inventory, or repay debts on time. Vendor bill discounting helps entrepreneurs to avail funds quickly based on the value of their unpaid invoices. Hence, it becomes easier for enterprises to maintain a positive cash flow situation and meet immediate financial obligations.
Boost Overall Sales
Often small businesses sell goods on credit to sustain growth in the long run. But the small businesses owners find it daunting to sell goods on credit while maintain working capital and cash flow position positive. Unlike other forms of business credit, vendor bill discounting enables business owners to meet short-term working capital needs and improve cash flow position by availing credit quickly. The entrepreneurs can further avail credit without any hassle or delay by discounting their unpaid invoices.
No Need to Sacrifice Confidentiality
The lending institutions providing vendor bill discounting services focus extensively on maintaining confidentiality. They require business owners to meet certain criteria to avail credit by discounting unpaid invoices. But they allow entrepreneurs to get the unpaid invoices discounted without informing the suppliers or customers. Hence, it becomes easier for entrepreneurs to avail credit while maintaining confidentiality.
Focus on Improving Credit Score
Many lending institutions nowadays provide credit based on commercial invoices. Likewise, many lenders also assess the credit worthiness of the businesses before discounting bills. Hence, the entrepreneurs must improve their personal credit scores and business credit history to avail vendor bill discounting services. Hence, invoice discounting makes entrepreneurs to work on improving their credit score and credit history.
On the whole, bill discounting enables business owners to avail credit by discounting their unpaid invoices or vendor bill. But the entrepreneurs have to pay a fee to avail bill discounting services provided by various lending institutions. Also, some lending institutions require the borrower a tripartite agreement that will enable them to collect payment directly from the buyer on the due date. Hence, it is always important for the business owners to understand the terms set by the lending institution before availing the vendor bill discounting services.