Account Receivables Discounting:

For many businesses, long invoice cycles is an unfortunate reality. Waiting for 30 to 90 days to receive the payment directly impacts the working capital of the business. This further affects the cash flow and creates various operational challenges such as paying salaries, procuring new supplies, etc. Fortunately, there are several financial assistance available for businesses to access working capital and gain a competitive edge. One of the most popular short-term financing options available is “Account Receivables Discounting”. Also known as “Invoicing Discounting” or “Bill Discounting”, this service allows businesses to get access to cash flow, thus ensuring smooth business operations.

What is Receivables Discounting?

Receivable discounting is a form of asset financing in which a business benefits from a short-term loan against its account receivables. It can be used for various reasons and inevitably support the business by generating cash-flow and can help avert working capital challenges. This is sometimes also referred to as receivable discounting loan, invoice discounting, or invoice financing.

How Does It Work?

Receivable discounting is a process where capital is provided to a business against receivables such as unpaid invoices. Typically, 75–90% of the invoice value will be funded by an investor. This money will have to be returned with interest within a stipulated tenure; generally 30–90 days.

KredX has simplified the process for businesses to get hold of this benefit.

• Upload your invoice on the KredX platform.
• Set the discount rate at which you would like to sell your invoice.
• Your invoice is then evaluated stringently in our 360° invoice analysis process.
• Upon approval, we intimate our network of registered investors about the invoice.
• Interested investors can then choose to purchase your invoice partially or wholly.
• Within 24 – 72 hours*, you will have your entire invoice funded by one or many investors.
• Subsequently, within 30 – 90 days, when your client has paid your full invoice amount, we distribute the discounted rate to all the participating investors.
• The investor receives a quick ROI, while you receive the opportunity to stabilize the growth of your business.

Benefits of Receivable Discounting:

• Collateral-free – Receivable discounting by KredX doesn't require a business to own high-value assets. This form of financing is collateral-free as the account receivables itself acts as a pseudo collateral.
• Confidential - The source of capital obtained need not be disclosed to anybody, including the customer.
• Streamlines cash-flow – With the quick injection of capital, account receivables discounting supports a company in streamlining cash-flow, thereby eradicating any setbacks that may threaten profitability.
• Quick processing – The time taken to process an application is quick, and therefore is a favored short-term business financing option.
• Not required to alert clients – As opposed to receivable factoring, account receivable discounting doesn’t necessitate informing clients about the process.
• Balance sheet management – Opting for receivables discounting in India has the potential to strengthen the balance sheet of the company since invoice discounting generates off-balance sheet liquidity without having to use collateral.
• Doesn’t affect balance sheet – This form of financing offered by KredX doesn’t show up on the balance sheet and is therefore not considered debt in the business.

Receivable Discounting vs Factoring:

In essence, both these options provide short-term working capital quickly. However, with receivables factoring, the financial institution takes over the procedure of collecting invoices, following up on late payments, and the company’s accounts. With invoice discounting, the business retains control over these factors.

Faqs

1. What is meant by discounting a note receivable?

Discounting of a note receivable is when a company sells or pledges a note receivable of a customer to an investor or a financial institution prior to its maturity date. The investor funds a percentage value of the note and the business returns the funds along with interest within a stipulated tenure.

2. What happens when accounts receivable decreases?

Account receivables are the due payments owed by customers to the business. It is inversely proportional to cash-flow. When account receivable decreases, cash-flow increases, and vice versa.

3. How do I record a discount on a note receivable?

Recording a discount on note receivable is a 5 step process.

• Calculate the maturity value
• Calculate the discount
• Figure out the proceeds
• Figure the net interest expense or income
• Prepare the journal

4. Are high accounts receivable good or bad?

When a business has a high level of receivables in proportion to the cash in hand, this indicates weak business practices concerning debt collection. This is a cause for concern as the company may have a hard time benefiting from receivable discounting loans. Therefore, it becomes imperative for a business’ financial health to collect timely debts.

5. What are the most important goals of account receivables?

Some of the goals of account receivables are as follows.

• To maintain due payments of customers according to the stipulated tenure.
• To ensure payments are collected on time.
• To follow up with the sales department for unpaid dues.
• To highlight long overdue invoices.
• To settle dues against collections made.
• To reconcile all statements between customers and the company.