Bill discounting is any payment to be received by the seller in future date for which the amount is already taken in advance from the financial institution.
What is Bill Discounting?
Bill or invoice discounting is a trade activity in which the seller gets amount in advance at discounted rates from the lender. This makes buyers contribute in the form of interest rate in increasing the revenue of the financial institutions, banks or NBFCs in form of interest paid and from monthly fee.
For example: You have sold goods to Mr. X, he has given you letter of credit from bank of 30 days, if you want to get money from bank before 30 days, the bank will charge some interest rate from you, which in return will be called as discount for the seller. Let’s assume if the amount which you were supposed to get was Rs. 1 lakh on or after 30 days, by bank’s discount or interest rate of Rs. 50,000 you now get Rs. 95,000 in return form the bank. The buyer will anyhow deposit Rs. 1 lakh to the respective bank on 30th day only.
This trading or financial process is termed as bill discounting or invoice discounting.
Bills that come under bill discounting are termed as ‘bills of exchange’. Bill discounting feature can be used to avail loans up to approximately 90% of the raised invoices. The credit period majorly depends on the buyer’s creditworthiness. Once the bank is convinced, it provides discount on the amount that is required to be paid at the end of credit period.

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Features and Benefits of Bill Discounting
Credit Evaluation
Before sanctioning any invoice or bill discounting, the bank will surely consider the reputation of the seller by checking the past repayment history, financial stability and creditworthiness of the buyer as they do not want to be at risk if the buyer defaults to repay the amount.
Availability of Instant Cash
Instant cash is available at disposal for enterprises or businesses that helps to improve the momentum of the businesses; moreover, it provides the option to entrepreneurs to do business without funds. It works the similar way as bank overdraft but it is not the same, as the customer is required to pay interest on the used amount.
Banking Partner Preferred
A reputed bank is always the first preference before the bill discounting is offered to the buyer. This makes sure that the buyer’s bank (paying entity) is reliable and trustworthy. Agreement between reputable companies or banks is required for discounting purpose.
Bill Usage
Also known as ‘Usance Period’, bill usage is a period in which bill has to be valid within the date of time permitted by customers for the bill date and its payment. This time period can vary from 3 weeks to 3 months.
Additional benefits
- Effortless withdrawals
- Flexible repayment tenure
- Strengthened cash flow
- Interest to be paid only on used amount
- Easy authentication
- Quick processing with hassle free documentation
In bill discounting process, the interest amount is charged in advance by the bank from the buyers. Being it an agreement between buyer and seller, the bill amount is paid as per the end of credit period.
Also Read: What is letter of credit with example?
Ways of Presenting Invoice
Mainly there are two methods of presenting bills to the buyer’s bank, named as – with and without recourse. Let’s understand further about these two ways.
With Resource
in With Resource method, the seller’s bank verifies and checks all the documents and discount terms to further send it to the buyer’s bank. Then the bank do not re-check the rest of the things and can claim refunds later on, if there is any issue.
Without Resource
Whereas, in Without Resource method, no checks are performed by the seller’s bank at the time of request for payment and buyer’s bank performs the checks on all the important details. Mainly, this practice is followed when both banks have acceptance, tie-ups for payment and negotiations from each other.

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Process of Invoice Discounting
- Invoices are being raised when the seller sells the goods on credit
- Accepting the invoice means, that the buyer has acknowledged on paying the amount on due date
- For discounting purposes, seller approaches the financial institution
- As per the creditworthiness of the buyer and legitimacy of the bill, the bank or NBFC is assured
- Bank or NBFC disburses the fund to the seller post deducting the fee, discount and appropriate margin which is already defined
- Furthermore, the seller receives the funds which can be used for other business purposes
Bill discounting or invoice discounting has always been considered as a beneficial financial instrument that has helped sellers in providing working capital finance.
Eligibility for Bill Discounting
The eligibility criteria for bill discounting shall vary from lender to lender and is defined by the respective financial institution offering loan.
Factors that affect eligibility are as follows:
- Business Vintage
- Business Volume and Annual Turnover
- Financial Stability
- Repayment history and capability
- Business Positive Net worth or Profitability
- Credit rating of business
- Previous loan defaults, if any
Bill Discounting Rate of Interest
The interest rate offered by financial institutions on bill discounting depends on factors that include business stability, financial history, business volume, business tenure, applicant’s credit score or creditworthiness along with his/her financials.
Bill Discounting Vs. Business Loan
Category | Bill Discounting | Business Loan |
Interest Rate | Depends on financial stability and business volume | Depends on applicant’s profile and business requirements |
Purpose | Used for trading activities – mainly import/export | Used to meet daily business requirements & much more |
Eligible Entities | Medium & Large enterprises with high net-worth and business volume with financial stability | Individuals, Startups, MSMEs, Private and public limited companies, many more types of companies |
Loan Amount | Depends on nature of trade | Max. up to Rs. 1 crore, may exceed |
Repayment Tenure | From 12 months – 3 years | From 12 month – 5 years |
Nature of loan | Short-term | Term loan, Working Capital Loan |
Collateral | Required, submitted in form of bills or invoices | Not required for unsecured business loans |
CIBIL Score | Checked by lender (750 or above is considered good) | Not always checked |
Annual Turnover | Defined by lender | Defined by lender |
Sanctioned Limit | Used in small portions | Used as lump sum amount |
Loan Disbursal Tenure | Instant, if loan approved | 2-3 working days, sometimes even lesser depending upon financial institution |
Leading Financial Institutions offering Bill/Invoice Discounting Facility
SBI
ICICI Bank
TATA Capital
HDFC Bank
Bajaj Finserv
Bank of Baroda
IDBI Bank
Federal Bank
South Indian Bank
Lendingkart Finance
Indifi Finance
Central bank of India
Abhyudaya Co-operative Bank
EFL Finance
Capital Float
Hero Fincorp
FAQs on Bill Discounting
Q. What is Bill financing?
Ans. Bill financing is a term used when an enterprise uses its invoices to obtain cash from a bank in order to purchase supplies and goods for the business. Bill financing is also termed as Bill discounting or Invoice discounting.
Q. Can NBFCs offer bill discounting facility?
Ans. Yes, NBFCs are eligible to offer bill discounting services to its customers. However, the interest rate shall vary and shall depend on the nature of business and business volume.
Q. Is bill discounting a type of business loan?
Ans. Yes, it is one of the types of business loan offered by financial institutions like banks and NBFCs. In this type of business loan, amount is sanctioned on the basis of bills or invoices shared with the lender.
Q. What is Invoice Discounting?
Ans. Invoice discounting or bill discounting are termed as same type of business loan in which loan amount is sanctioned against the raised bills or invoices.