Everything You Need to Know About Bill Discounting

Running a business in India often means waiting weeks or even months for customers to pay their invoices. That wait can put a real strain on your cash flow. The good news? You have the option of bill discounting. It serves as a powerful tool that helps businesses stay liquid and grow faster.

Understand how to access and benefit from bill discounting in India, so you can focus on what matters: running your business.

What is Bill Discounting?

Bill discounting or invoice discounting or discounting bills of exchange, is a financial service that lets you sell your unpaid invoices to a bank or NBFC at a discount. In return, you get immediate cash instead of waiting weeks or months for your customer to pay.

Banks (or NBFCs) give you most of the invoice amount upfront after deducting a small fee, which is the discount. The bank then collects the full invoice amount from your customer when it’s due.

Think of it as a way to “sell” your bill for quick cash. You get working capital right when you need it without waiting for the payment cycle to end.

Why Do Businesses Use Bill Discounting in India?

Cash flow is king. Especially for SMEs, waiting for payments can stall growth, delay salaries, and disrupt operations. Bill discounting in India helps by:

• Unlocking funds tied up in receivables
• Improving working capital without extra debt on your balance sheet
• Allowing you to negotiate better supplier terms
• Keeping your business agile and ready for new orders

No need for collateral. No need to chase customers. Just quick access to your own money, minus a small fee.

How Does Bill Discounting Work?

Here’s how the process usually unfolds:

• Invoice Creation: You sell goods/services on credit and issue an invoice to your customer with a future payment date.
• Buyer Acceptance: The customer accepts the invoice, promising to pay on the agreed date.
• Approaching a Lender: You approach a bank/NBFC for bill discounting and submit the invoice.
• Verification: The lender checks the invoice and your customer’s creditworthiness.
• Funds disbursal: The lender pays you the invoice amount minus a discounting charge.
• Payment on Maturity: On the due date, your customer pays the full invoice amount to the lender.

Bill Discounting Charges and Costs

The main cost is the discounting fee – a percentage of your invoice value. In India, this usually ranges from 1% to 3% per invoice, depending on your lender, your buyer’s creditworthiness, and the invoice amount.

Other possible charges:

• Processing fees
• Documentation charges
• Late payment penalties (if your buyer delays payment)

Always check the total cost before you agree.

Types of Bill Discounting

Not all bill discounting is the same. Here are the main types you’ll find in India:

• Standard Bill Discounting: The most common. Both you and your customer know the invoice is discounted. The bank may contact your customer directly for payment.
• Full Turnover Invoice Discounting: You assign your entire sales ledger to the lender. Great for businesses with lots of invoices and regular cash flow needs.
• Partial Turnover (Selective Invoice) Discounting: You choose which invoices to discount. Offers flexibility and control if you only need funds for specific transactions.
• Clean Bill Discounting: Quick funds with minimal paperwork, but may come with higher risk charges.
• LC-Backed Bill Discounting: Used in international trade. Funds are advanced against a Letter of Credit.

Each type suits different business needs – whether you want flexibility, speed, or simplicity.

Practical Example of Bill Discounting

Let’s say you run a textile business. You supply ₹5,00,000 worth of fabric to a retailer, who promises to pay in 90 days. But you need cash now to buy raw materials for your next order. You approach a bank for bill discounting.

• The bank reviews your invoice and the retailer’s credit.
• The discounting rate is 2%. So, the bank pays you ₹4,90,000 upfront.
• After 90 days, the retailer pays ₹5,00,000 to the bank.
• You’ve got immediate working capital without taking on new debt.

Features and Benefits of Bill Discounting

• Instant Cash: Get funds within days, not months.
• No Collateral Needed: Your invoice itself is the security.
• Improved Cash Flow: Pay salaries, buy raw materials, and keep operations running smoothly.
• Flexible Terms: Choose which invoices to discount and when.
• Credit Risk Assessment: Lenders check your buyer’s credibility, reducing your risk.

What Is Rebate on Bills Discounted?

Sometimes, you might want to settle a discounted bill with the bank before its due date. In that case, the bank may offer a rebate on bills discounted – a refund of part of the discount initially charged, since the bank gets its money back sooner than expected. The rebate is calculated based on the unexpired period and the agreed rate.

It’s simply an early-settlement incentive, reducing your cost if you pay off the bill before maturity.

For instance:

You discount a bill for ₹1,00,000 at 6% for 90 days. If your customer pays in 60 days, the bank may refund you the discount for the unused 30 days. This is the rebate on bills discounted.

Bill Discounting vs Factoring: What’s the Difference?

These two terms are often confused, but they aren’t the same:

Bill discounting is about getting early payment for specific invoices, while factoring often involves selling your entire receivables and passing on collection responsibility. The difference comes down to control, confidentiality, and the range of services.

Purchase Bill Discounting & Charges: A Special Case

Purchase bill discounting is when a buyer, not a seller, uses bill discounting. It’s when you use your purchase invoices (instead of sales invoices) for discounting. This can help buyers pay suppliers early and sometimes get better terms.

The buyer’s bank pays the supplier upfront, and the buyer repays the bank later. It’s a win-win: suppliers get paid instantly, and buyers get more time to settle dues.

Bill discounting charges include the discounting fee (usually a percentage of the invoice) and sometimes processing fees. Always check the total cost before you proceed.

Bill Discounting in Financial Services: Why It Matters

Bill discounting is a vital part of India’s financial ecosystem. It helps MSMEs and large companies alike. Advantages include:

• Bridge cash flow gaps: No waiting for long credit cycles.
• No new debt: Avoid taking on traditional debt. It’s your own money, just received early.
• No collateral required: Most banks rely on the invoice and buyer’s credit.
• Strengthen supplier-buyer relationships: Pay on time, every time.
• Support growth without waiting for slow payments.

With India’s MSME sector contributing nearly 30% to the country’s GDP, tools like bill discounting are helping thousands of businesses scale up and stay competitive.

Conclusion

Bill discounting in India is a lifeline for businesses needing quick cash without waiting for slow customer payments. By leveraging unpaid invoices, you can access funds, cover expenses, and keep your business moving forward. At My Mudra, we help you navigate the world of bill discounting – offering guidance, support, and access to trusted lenders.

Understanding the process, costs, and differences empowers you to make the best choice for your business. Have more questions? Reach out to My Mudra for expert advice on all your business finance needs.

Also Read: Best Bank for Business Loan with Low Interest Rate: 2025 Guide