Sales Invoice Discounting
Sales invoice discounting enables businesses to get immediate cash by selling their accounts receivable (invoices they’ve issued to customers) to a financial institution. It’s a useful tool to manage cash flow, especially when there’s a gap between delivering goods and receiving payments from customers.
How it works in detail:
• Step 1
A business delivers products or services to a customer on credit terms (e.g., 30 or 60 days to pay).
• Step 2
After delivering the goods or services, the business raises a sales invoice and sends it to the customer.
• Step 3
Instead of waiting for the customer to pay, the business approaches a financial institution with the sales invoice.
• Step 4
The financial institution agrees to discount the invoice by providing the business with an advance on the invoice value, typically around 70-90% of the total invoice amount.
• Step 5
When the customer eventually pays the invoice, the business settles its debt with the financial institution. The financial institution may keep a fee for providing the service, and the remaining balance is transferred to the business.
This solution helps businesses get instant liquidity, avoid cash flow bottlenecks, and meet day-to-day expenses.