HOW DOES INVOICE DISCOUNTING WORK?

Dealer Finance09 May, 2023Finance

The process of invoice discounting is quite simple. A business entity (seller) sells some goods to another business entity (buyer) and raises an invoice against it. Once the buyer approves, the seller sends the invoice to the financial institution for raising funds. The lending institution verifies the invoices at their end and issues a certain percentage of the invoice?s face value (usually 80%) as per the terms agreed. The invoice amount is collected on maturity by the business entity or the lending institution as per the agreement terms. When the buyer makes a payment against the invoice to the lending institution, it deducts its service fee and returns the remaining amount to the seller.