What is Invoice Discounting?

Everyone has been talking about invoice discounting and how they get fixed returns and high percentages. But what is invoice discounting all about? Don't worry, Invoices Trades is here to explain.


If your cash is tied up in unpaid invoices and you need instant access to cash, then invoice discounting is the right process for you. So, when you invoice a client, you will receive a percentage of the total from the lender, this percentage will provide your business with immediate cash flow. Simply put, invoice discounting is the easiest form of invoice finance. Invoice discounting is where you sell unpaid invoices to a lender/investor and they give you the bill amount in advance. This can be the entire bill or a part of the bill amount. When your customer pays the invoice amount to you, the lender/investor pays the remaining balance minus their fee.

You can also look at invoice discounting as a series of short-term business loans. These invoices will be used as a trust of security. Thus, since the lender is aware that you are owed the money, they will lend you most of the money before your customer pays you.

Is there something called confidential invoice discounting?

Invoice discounting in general is confidential. You will continue to deal with your customers but they won't know that you are using a finance provider.

We'll help you understand this better with an example;

Mr. Gupta has recently begun a discounting service with Invoice Trades to assist with the cash flow. Now, Mr. Gupta issues an invoice of Rs. 10,000/- to his client. Mr. Gupta's contract with Invoice Trades states that the advance percentage is 75%. Hence, Mr. Gupta receives an amount of Rs. 7,500 from Invoice Trades as soon as the invoice is raised.

Generally, Mr. Gupta would upload his invoice with the moneylender to his online account. After this, he would receive the advance. After a few weeks, Mr. Gupta's client settles the invoice by paying Rs. 10,000 into the trust account managed by the moneylender. Since everything is confidential, the client thinks that he is crediting the money to Mr. Gupta's account. Invoice Trades then pays the remaining amount of Rs. 2,500 minus their dues (lender's interest). Their fees might be between Rs. 250 - 300. This means that Mr. Gupta will be getting an amount between Rs. 2,200 - 2,250.