- Understanding the Concept of Bill Discounting
- Bill Discounting Pros
- Bill Discounting Cons
- Usage of Blockchain for Bill Discounting
Understanding the Concept of Bill Discounting
Assume that an organization, name A, makes a credit sale to another organization, name B. The timeline for the credit period is three months, but in between organization A faces a cash crunch and is in desperate need of money. A can ask B for the money, but B is not obligated to pay the money for three months. In such a situation, organization A can ask for the money from a bank, by giving them the credit bill as leverage. The bank will verify the bill and will pay organization A the money after deducting its commission/fees. The bank will collect the money from organization B at the end of the credit period. This whole process is known as bill discounting.
Bill Discounting Pros
Pros of using bill discounting are
- Instant availability of cash
- Decreases the chances of bad debts
- Better interest rates in comparison to an unsecured business loan
- Frees working capital
Bill Discounting Cons
The cons of Bill discounting are
- Small and Medium size businesses may not be able to utilize this facility as banks only approve bill discounting when the invoice amount is large, and the payer has a reputation.
- The verification process can be tedious
- Cases of duplicate invoices have been witnessed in the past, leading to duplicate financing, causing frauds.
Usage of Blockchain for Bill Discounting
Over a blockchain platform, distributed or shared ledger technology is implemented. This technology runs on a peer-to-peer network, making it impossible to tamper with the records stored on this network. Usage of blockchain for bill discounting will offer various benefits.
- Smart contracts can be used for the execution of bill discounting arrangements. Many crypto networks like Ethereum offer the smart contract feature.
- Blockchain will also save the credit history and credit rating of the participants on its network.
- The funds would be available quickly because blockchain will ensure faster processing, by automating most of the process.
- This facility will be enjoyed by all sorts of businesses, small and medium businesses in particular, who also have their presence on the blockchain.
- Blockchain’s security and high transparency will eliminate any chances for fraud and duplicate invoices.
- Tracking of transactions on a real-time basis.
- All the parties involved in the discount bill will be able to access data at any point, thanks to the distributed ledger feature of blockchain.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.
Photo by – geralt on Pixabay