Discounting Procedure is usually done for invoices. It is also known as bill discounting, invoice discounting and several other terms. Technically it is a process where the vendor sells the bill to the addressed company for a lesser value than the actual invoice amount before the due date.

The difference made in the actual amount paid and the bill value is earned by the discounting company. The fee will vary based on the time left before the due date and the expected risk.

This procedure helps both the vendors and buyers. The vendors will get the money as soon as possible and this helps them make more cash which can be further utilized for the business.

Procedure

The vendor sells the goods to the purchaser and issues an invoice as agreed by both the parties. The buyer verifies and acknowledges to clear the invoice before the agreed due date. The seller then contacts the discounting company who scrutinizes the credibility of the seller and validity of the submitted invoice.

Once it gains the confidence to go ahead, the discounting company will then further releases the cash to the seller with a negotiated margin which depends on several factors. The vendor gets the fund and uses it as per their choice. With the arrival of the due date of payment, the discounting company will produce the invoice to the buyer and collects the money for their transaction.

Even though this procedure helps in bringing in immediate cash to the sellers, it is expensive than compared to bank overdrafts. However, with several brokers and financial institutions encouraging this system, it is advantageous for the sellers to get cash in dire situations where other options are unavailable and uncertain.

Get more definitions about the Discounting procedure and other ERP related terms here.

   

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