The definition of Invoice financing
Invoice financing also known as invoice discounting, is a form of short-term financing in which a company sells its accounts receivable (invoices) to a financial institution, such as a bank or a non-banking financial company (NBFC), at a discount. The financial institution advances a percentage of the invoice value to the company, typically between 70% and 90%, and holds the invoices as collateral until they are paid by the customer.
To visit: https://www.gst.gov.in/
In India, invoice financing is becoming increasingly popular among small and medium-sized enterprises (SMEs) that face cash flow issues due to delayed payments from customers. It allows these companies to obtain immediate funds by converting their accounts receivable into cash, without having to wait for the payment due date.
The process of invoice financing in India involves the following steps:
1.The company generates an invoice for the goods or services provided to the customer.
2.The company submits the invoice to the financial institution for financing.
3.The financial institution verifies the invoice and approves the financing.
4.The financial institution advances a percentage of the invoice value to the company.
5.The customer pays the invoice amount to the financial institution on the due date.
6.The financial institution deducts its fees and interest charges and returns the remaining amount to the company.
Invoice financing is a flexible and convenient financing option for companies in India, as it does not require collateral or a long-term commitment. However, it is important for companies to carefully review the terms and fees associated with invoice financing before entering into any agreements with financial institutions.
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