supplychainfinance

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What Is Invoice Discounting How It Works?

• MYND FINTECH

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BRIEF INTRODUCTION OF
INVOICE DISCOUNTING

• Invoice discounting is a financial tool that
  allows businesses to generate regular cash flows
  by pledging their sale invoices as collateral
  with a financial entity. If an invoice is not
  paid by its due date, it will incur a service
  charge. Invoice discounting helps businesses get
  paid faster and improve their working capital.
• Invoice discounting is a financial practice used
  by businesses to borrow money to pay their
  outstanding bills.
• When one business sells a product or a service to
  another business, the purchaser gives the seller
  an invoice. The purchaser promises to pay for the
  services within a specified amount of time, which
  is usually anywhere from 1 month to 6 months.
• To avoid the wait for funds to clear, the seller
  can get a loan using unpaid accounts receivables
  as collateral. The lender verifies the credit
  worthiness of both the buyer and the seller
  before giving approval for the loan. Once
  approval is granted, up to 80 (for invoices less
  than 90 days old) of an invoice's face value can
  be paid.

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WHAT IS THE PURPOSE OF INVOICE DISCOUNTING?

• The primary purpose of Invoice discounting is to
  ensure a smooth cash flow into the business. For
  not cash-rich companies, it is crucial that their
  funds do not get stuck in bills receivables. They
  may sometimes get a big order from a reputed
  corporate or have other business opportunities.
  In such a situation, not having enough funds can
  lose that business opportunity.
• Along these lines, Invoice discounting not simply
  assists a business with expanding the cash flow
  in their framework yet additionally speeds up
  business development. At the point when a
  business pays their suppliers routinely, it
  improves their standing and assists them with
  getting more ideal arrangements later on. That is
  the reason organizations are prepared to limit
  their invoices and get lesser yet faster
  installments against their deals invoices.

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HOW DOES INVOICE DISCOUNTING WORK?

• The process of invoice discounting is
• A Seller sells some goods to another Buyer and
  raises an invoice against it.
• After the buyer approves, the seller must send
  the invoice to the financial institution for
  payment.
• The lender verifies the invoices at their end and
  issues a percentage of the invoices face value
  (usually 80) as per the terms agreed.
• According to the agreement terms, the invoice
  amount is collected from a business entity or a
  lending institution on maturity.
• Once the buyer makes a payment against an invoice
  from the lending institution, the firm deducts
  its service fee and returns the remaining amount
  to the seller.

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WHAT IS THE FEES OF
INVOICE DISCOUNTING?
Invoice discounting is a type of financing in
which an institution buys the receivables of a
business. It is similar to factoring but
different in that an invoice discounting
agreement is structured as a loan, not a sale.
The fees involved are the commissions and service
fee charged by the lending institution. Interest
is charged on only so much of the loan amount
that is actually borrowed, not on all of the
funds available to be borrowed.
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ADVANTAGES OF
INVOICE DISCOUNTING

• Invoice discounting is a financial service that
  offers firms a quick and hassle-free way to
  ensure regular cash flows into the business. Some
  of its specific advantages are listed below
• Ensures quick availability of cash Invoice
  discounting is a type of financing that is used
  to obtain small amounts of money in a hurry.
  Businesses can apply for the funds and receive
  them within 24-72 hours. For businesses
  generating many invoices, this can be a boon
  because it prevents blocked funds as accounts
  receivables.
• Protects businesses from bad debts Some lending
  institutions offer value-added services to their
  customers. They charge an additional fee for this
  service and protect sellers against bad debt
  losses.
• Maintains confidentiality For privacy reasons, a
  buyer may not want to divulge his financial
  information. In such cases, lending agencies help
  to facilitate loans while maintaining
  confidentiality.
• Get higher and better credit terms As time
  passes and your business grows,
• the confidence of your lender in you also
  increases. This allows you to take
• out more funds based on trade receivables.

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CONCLUSION

• Some businesses view invoice discounting
  negatively, believing the practice does nothing
  but add costs to a business. The reality is that
  invoice discounting helps businesses take on
  bigger jobs, forgoing smaller jobs in order to
  make larger profits. Invoice discounting also
  improves business relations with employees and
  other stakeholders by maintaining liquidity and
  improving cash flow , thus allowing for
  due-payments and timely payment of suppliers.
• Want to know more about how invoice discounting
  can help you enhance your business relations?
  Contact Mynd Fintech today and let us show you
  how our Invoice Discounting service can solve
  your cash flow problems.

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Thanks

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