Bill discounting is a financial practice where a business sells its accounts receivable (often in the form of a promissory note or a bill of exchange) to a financial institution at a discount before the payment is due. This process allows businesses to access immediate cash flow instead of waiting for the payment periods defined in their invoices.
In this arrangement, the financial institution evaluates the creditworthiness of the debtor and may charge a fee or interest based on the time remaining until the bill’s due date. The business receives a lump sum, minus the discount, which helps support ongoing operations or finance new opportunities.
Bill discounting is particularly relevant for small to medium-sized enterprises that require immediate liquidity to manage day-to-day expenses or invest in growth initiatives without taking on additional debt. It serves as an efficient way to improve working capital, enhancing a company’s financial stability and operational efficiency.
