What is Invoice Discounting?
Invoice discounting is a type of financial transaction that comes under the category of debt financing. It is also know as invoice factoring. Invoice factoring involves a business selling its accounts receivable to a third party, that is known as the factor, at a discount. A company may sell its receivable assets to meet its present immediate cash needs.
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These are specific companies; factoring companies, that are third party financial institutions that offer businesses cash in exchange for ownership of unpaid invoices or outstanding bills. These factoring companies and businesses open up their cash flow, while they wait for customers to pay them back for their services. This ensures that there is regular cash flowing within the company, so that day to day processes do not get hindered or stuck due to payment issues or concerns.
Invoice factoring is a huge boon for small companies and MSME’s. In a country like India, where businesses are booming, and small businesses are growing rapidly, especially after all the governmental incentives. Now days there are quite a few factoring companies in India, however only a few have invoice discounting as their core business model.
However the main problem or concern with invoice factoring companies is the paper work and filing of bills. Acting as a mediator in between the Suppliers and buyers, it can get cumbersome for the Financiers to cope up. In order to cope with such inconveniences and issues.
However the main problem or concern with invoice factoring companies is the paper work and filing of bills. Acting as a mediator in between the Suppliers and buyers, it can get cumbersome for the Financiers to cope up. In order to cope with such inconveniences and issues.
TReDS is one of India’s premier invoice discounting market places that enables businesses to gain access to working capital within a short span of 72 hours, thus giving investors an opportunity to earn high returns with low risk through a unique short term investment.
It will now be mandatory for companies with a turnover of more than Rs 500 crore to join Trade Receivables e- Discounting System (TReDS) so that MSMEs do not face trouble in cash flow, stated Narendra Modi.
Invoice Discounting / Financing Companies in India
M1Xchange
Under the approval of the RBI, one of them is M1xchange, an online platform set up by Mynd solutions. M1’s Trade Receivables Discounting system is an online exchange set up under the approval of the RBI, which helps facilitate the discounting of Invoices and Bills of Exchange on a pan India basis. As mentioned, TReDS is a platform setup for MSME’s, large corporates such as PSUs and Governmental departments, and lastly Banks and NBFC’s. M1’s goal is to provide MSME supply chain related cash flow finance at economical rates through an open bid process via multiple financiers. M1 uses latest cutting edge technologies to ensure the legitimacy of all and any underlying transactions.
Therefore it can be said that invoice factoring works on multiple levels, it has multifaceted benefits for all those involved in a trade exchange. It facilitates the constant flow of cash that allows constant growth of businesses. M1xchange has proven to be one of the best platforms that facilitates invoice financing, and offers best in class trade receivables exchange for MSMEs, Corporates and Financiers; ensuring seamless liquidity flow between all stakeholders thereby contributing to the country’s growth.
RXIL - Receivables Exchange of India Ltd
Another company known for their invoice financing is Receivables Exchange of India Ltd that was incorporated as a joint venture between SIDBI- the apex financing institution of promotion and financing of MSME’s in India, and the National Stock Exchange. RXIL too operates as a TReDS platform as per guidelines issued by the RBI.
