INVOICE DISCOUNTING/BILL DISCOUNTING

BILL DISCOUNTING PROCESS:

The step-by-step process of bill discounting is given below:

• A seller supplies goods or services to a buyer and raises an invoice.
• The buyer accepts the invoice. This approval means the buyer acknowledges the invoice and promises to make the payment on the due date.
• The seller approaches the financial institution to get the bill discounted.
• The financial institute verifies the creditworthiness of the buyer and the legitimacy of the bill.
• Once approved, the bank disburses the funds to the seller after deducting the pre-defined fee, discount, or appropriate margin.
• Thus, the seller gets a quicker payment for the invoice, which can be used for other business purposes.
• At the end of the original credit period, the buyer makes the payment to the financial institution.

FEATURES OF BILL DISCOUNTING:

• Evaluating the seller and buyer: Before approving the bill discounting, the bank or NBFC first checks the seller’s reputation and the buyer’s creditworthiness. This is done to ensure that the buyer does not default on making the payment to the bank.
• Making instant cash available for the buyer: It is the most salient feature of bill discounting. The bank or NBFC purchases the invoice and immediately pays after discounting the bill. This makes life easy for the seller. They get an immediate payment and do not need to wait for the buyer to pay the bill.
• Discount Charge: The difference margin between the face value of the invoice and the amount approved and disbursed by the bank is called the discount. This discount is calculated on the maturity value at a certain percentage per annum.
• Maturity: The maturity date of a bill means the date on which payment of the invoice is due. The average maturity period is 30, 60, 90, or 120 days.

BILL DISCOUNTING RATE OF INTEREST:

Most banks and NBFCs do not have a fixed interest rate for discounting bills. Any financial institution considers several factors before deciding on the discount, which may vary from customer to customer.

The various factors that go into consideration for deciding the discounting rate are:

• Financial history and credit score of the seller
• Years of being in the business
• Business volume
• Credit-worthiness of the buyer
• Stability of the business and industry

FACTORS THAT AFFECT THE ELIGIBILITY:

In addition to the criteria mentioned above, some general guidelines that affect the eligibility for bill discounting are listed below:

• Number of years in the business
• Nature or type of business
• Business Volume and Annual Turnover
• Financial Stability of the seller
• Repayment history and capability of the buyer
• Business Positive Net worth or Profitability
• Credit rating of a business
• Previous loan defaults, if any

DOCUMENTS REQUIRED FOR BILL DISCOUNTING:

Some of the most common documents required for approving a bill discounting are:

• Duly filled application form with passport-sized photographs
• Business PAN card and address proof
• Applicant’s Aadhar card.
• GST Returns
• Income tax return & Financial statement with an audit report.
• Business Establishment Proof
• Last 12 months’ bank statement
• Bill of Exchange
• Letter of Credit
• Commercial Invoice
• Packing list with all the details
• Logistics details with a copy of the delivery note, if any
• Proof of certificates, registrations, licenses, and permits, if any
• Any other document required

BENEFITS OF BILL DISCOUNTING:

In addition to the criteria mentioned above, some general guidelines that affect the eligibility for bill discounting are listed below:

Bill discounting, as a financial transaction, is beneficial to all the parties involved – the seller, the buyer, and the financial institution. The buyer and the seller can stabilize their fund flow, while the financial institution can use the funds lying with them and make some profit on it.

The specific benefits of bill discounting are as follows:

• Improves cash flow position: All businesses, big or small, depend on cash flow to survive and grow. Bill discounting facility helps inject a quick cash flow into the business and help the businesses survive and flourish. The money received quickly may be used to pay salaries, procure raw materials for the next order, or invest in some new asset.
• Provides instant access to cash: For a seller, a bill discounting facility is a quick and hassle-free way of getting payment against their invoices. It helps them manage their working capital better and keep the working capital cycle short. Most financial institutions like MYND offer funds within 24 to 72 hours.
• No collateral involved:Bill discounting, as a process, is very simple. It does not involve much documentation. Secondly, the seller is not required to provide any collateral security to get the funds. The invoice itself is strong enough collateral to get the funds.
• No debt incurred: Getting funds using a bill discounting facility does not put the buyer under any kind of debt. Here, the buyers get money against the invoices, which is anyways due to them. It just helps them get the money. So, it does not create any debt liability for them. Compared to traditional financing models, a bill discounting facility is safe from any kind of loss or damage.
• No impact on business sheet: Bill discounting facility does not create any tax liability. It is more of an off-the-book process. So, it has no impact on the balance sheet of the business.

Home Loan

1.Purpose: Home loans are specifically designed to help individuals or families finance the purchase of a residential property. This could be a house, apartment, condominium, or other types of residential units.

2.Types of Home Loans:

• Fixed-Rate Loans: These have a fixed interest rate for the entire loan term, providing predictable monthly payments.
• Adjustable-Rate Loans: These have an interest rate that can change periodically based on market conditions, potentially leading to fluctuations in monthly payments.
• Government-Backed Loans: Examples include FHA (Federal Housing Administration) loans, VA (Veterans Affairs) loans, and USDA (U.S. Department of Agriculture) loans, which offer specific benefits and eligibility criteria.
• Jumbo Loans: These are for amounts that exceed the conforming loan limits set by government-sponsored enterprises like Fannie Mae and Freddie Mac.

Interest Rates: Home loan interest rates can vary based on factors such as the borrower's credit score, loan amount, loan term, and prevailing market rates. It's crucial to compare rates from different lenders to get the best deal.

Loan Terms: Home loans typically have terms ranging from 15 to 30 years, although shorter or longer terms may be available depending on the lender.

Down Payment: Borrowers are usually required to make a down payment, which is a percentage of the property's purchase price. The size of the down payment can affect the loan amount, interest rate, and mortgage insurance requirements.

Repayment: Home loans are repaid through monthly installments that include principal and interest. Some loans may also require payments for property taxes and homeowners insurance, which can be escrowed by the lender.

Eligibility Criteria: Lenders assess factors such as the borrower's income, employment history, credit score, debt-to-income ratio, and the property's value before approving a home loan.

Benefits of Working Capital Loans

1. Tax benefits on home loan

To encourage more and more people buy their own house, government of India provides tax deduction on the principal as well as interest paid on home loan. An individual is eligible to claima deduction of up to Rs 1.5 lakh under Section 80C of Income Tax of India 1971 Act in a financial year. While a deduction of up to Rs 2 lakh is allowed on the interest portion under Section 24B of Income Tax of India Act. The deductions under income tax are only available after the construction of the house is complete. You can’t claim the income tax deductions while the property is under construction. Read: to know more about home

loan deductions.

2. Tax benefits on second house:

In case of second house, you are eligible to claim deduction for the entire amount of housing loan interest paid under Section 24B of Income Tax Act.

3. No prepayment charges:

Unlike other loans where lenders charge prepayment penalties on payment made towards home loan , there are no prepayment penalties on floating rate home loans . So, whenever you have surplus money, you can utilize it for making part payment towards your home loan and lower your burden. However, there will be prepayment charges in case of floating rate home loan.

4. Balance Transfer Facility:

In case of home loan you have the facility to transfer your home loan to different lender if he is giving you loan at a lower interest rate.

5. Makes it easy to buy dream home:

For many people buying house with own money is not possible, home loan as it can be repaid in easy monthly installments makes it easier to buy a house.

6. High repayment Tenure:

Among all types of home loan, It has the longest repayment tenure which goes up to 30 years, so one can reduce the burden of equated monthly installments by extending the tenure. Use our house loan EMI calculator to know how EMI change as you change your home loan tenure

Enjoy capital appreciation:

You will also benefit from the rise in prices of the property over time.

Saves you from paying rent:

As rent in metro cities is quite high they put strain on your monthly budget. It is better to pay the EMIs and own a house.