In This Article
What is Sales Invoice Discounting?
Sales Invoice Discounting is a financial solution that enables businesses to unlock the capital tied up in their unpaid sales invoices. Instead of waiting for customers to pay (which can often take 30, 60, or even 90 days), businesses can receive an advance of up to 90% of the invoice value immediately from a finance provider.
This specialized form of invoice finance focuses specifically on sales invoices – the amounts owed to your business by customers who have purchased your goods or services but haven't yet paid. By converting these accounts receivable into immediate cash, businesses gain improved cash flow and working capital flexibility.
Key Features of Sales Invoice Discounting
- Confidentiality: Unlike factoring, invoice discounting is typically confidential - your customers won't know you're using this financing method
- Control: You maintain control of your sales ledger and customer relationships
- Speed: Funds are usually available within 24-48 hours of invoice issuance
- Flexibility: Can be arranged for all eligible invoices or selectively for specific invoices
- Scalability: The funding available grows in line with your sales
How Sales Invoice Discounting Works
Sales invoice discounting operates through a straightforward process that provides businesses with quick access to cash tied up in unpaid invoices:
Invoice Your Customer
You deliver goods or services to your customer and issue an invoice with your standard payment terms.
Submit Invoice to Finance Provider
You submit the invoice details to your invoice discounting provider, typically through an online platform.
Receive Advance Payment
The finance provider advances you a percentage of the invoice value (typically 80-90%) within 24-48 hours.
Collect Payment from Customer
Unlike factoring, you maintain responsibility for collecting payment from your customer according to your agreed terms.
Repay Advance & Receive Balance
When your customer pays, you repay the advance to the finance provider along with their fee, and receive the remaining balance.
Sales Invoice Discounting Flow
[Sales Invoice Discounting Process Flow Diagram]
Benefits for Businesses
Sales invoice discounting offers numerous advantages that can significantly enhance a business's financial health and operational capabilities:
Improved Cash Flow
Convert outstanding invoices into immediate working capital, bridging the gap between sales and payment collection.
Business Growth
Access funds to take on new orders, invest in equipment, or expand operations without waiting for customers to pay.
Client Confidentiality
Unlike factoring, customers are typically unaware that you're using invoice discounting, preserving your business relationships.
Scalable Funding
Financing grows automatically as your sales increase, supporting business expansion without renegotiating terms.
No Additional Collateral
The invoices themselves serve as collateral, eliminating the need to pledge other business assets.
Maintain Control
You retain control over your sales ledger and customer relationships, unlike with some other financing options.
Eligibility Requirements
While sales invoice discounting is accessible to many businesses, finance providers typically assess several criteria to determine eligibility:
Business Profile
- Business Type: Limited companies, LLPs, and established sole traders
- Business Size: Typically businesses with annual turnover above ₹1 crore
- Trading History: Generally at least 6-12 months of successful trading history
Sales Invoices & Customers
- Customer Base: Businesses with commercial (B2B) customers rather than individual consumers
- Invoice Quality: Clean invoice history with minimal disputes or returns
- Customer Diversity: Preferable to have a diverse customer base rather than heavy reliance on a single client
Financial Health
- Credit Rating: Reasonable business credit history
- Financial Management: Evidence of sound financial record-keeping and management
- Profitability: Business demonstrating profitability or clear path to profitability
Important Note:
Eligibility criteria vary between finance providers. Even if your business doesn't meet all the standard criteria, specialized providers like LoanBazzar can often develop customized solutions based on your specific business circumstances. We recommend consulting with our financial experts to explore your options.