2022-05-28 09:30:19
Alternate investment
Fixed income
What is invoice discounting? What should I take care of while investing this way?
It is a win-win situation for 3 parties. For the business to grow, and for others to get decent returns on their investments.
Invoice discounting is the practice of using company’s unpaid invoices to raise working capital & fulfill its financial needs.
Company A has to pay 1 crore to Company B. Company A is a huge conglomerate, and it takes 3-4 months for them to process invoices and make payment.
Company B needs money immediately for other business expenses.
C buys the invoice from B at a discount and pays 95 lakh immediately.
Whenever A is ready to make the payment the entire payment of 1 crore comes to C, who thus ends up earning 5 lakh.
B gets immediate access to capital which might help them in other ways, and C earns a decent interest.
This can obviously be used for various types of due payments and varied amounts.
A few points to be taken care of:
*Higher the return you are getting, higher the risk
*The platform won’t return your money, the company will
*You don’t need to discount an entire invoice
*Check the platform fee
*As rare as the chance might be, if the company defaults, you don’t get anything back. It’s a zero or hero trade
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