Invoice Discounting

Overview

Invoice Discounting — Business Overview

Invoice Discounting is a business document used to manage short-term financing against issued customer invoices. It helps businesses unlock working capital by receiving early payment on outstanding invoices from a financing partner, instead of waiting for the customer’s actual due date.

This document plays a key role in cash flow management, especially for businesses that sell on credit terms and want to maintain liquidity without taking long-term loans.

What Invoice Discounting Is Used For

Invoice Discounting is used to: - Record invoices that are pledged or financed with a discounting partner - Track the amount received upfront against each invoice - Monitor fees, discounts, and maturity dates - Manage settlement when the customer finally pays the invoice

In simple terms, it allows a business to convert unpaid invoices into immediate cash while keeping full visibility of obligations and repayments.

Prerequisites and Setup Requirements

Before using Invoice Discounting, the following should be in place: - Customer invoices must already be issued and approved - Credit terms and due dates should be clearly defined - Financing partners or discounting providers should be agreed upon commercially - Internal policies for discount rates, charges, and settlement responsibility should be established

These prerequisites ensure accurate tracking and financial clarity throughout the discounting process.

Typical Business Workflow

Invoice Issued to Customer
The business issues an invoice with a future payment due date.
Invoice Selected for Discounting
The invoice is submitted under Invoice Discounting to obtain early funds.
Funds Received from Financing Partner
The business receives a discounted amount, minus agreed charges.
Invoice Tracked Until Maturity
The document remains open to track payment status and liability.
Customer Payment and Settlement
When the customer pays, the amount is settled with the financing partner, and the transaction is closed.

This workflow ensures continuous visibility of both cash inflows and outstanding obligations.

Key Business Scenarios Where Invoice Discounting Is Essential

Working Capital Management
Businesses with long customer payment cycles can maintain liquidity.
Growth and Expansion
Access immediate funds without increasing traditional debt.
Seasonal Sales Businesses
Manage cash needs during peak sales periods with delayed collections.
SMEs and Trade-Based Businesses
Reduce dependence on overdrafts or unsecured borrowing.

Important Considerations for Users

Discounting fees directly impact profitability and should be reviewed carefully
Not all invoices may be eligible based on customer risk or age
Clear responsibility for customer default must be defined upfront
Regular monitoring is needed to avoid mismatches between customer payments and financing settlements
Overuse of invoice discounting may indicate underlying cash flow challenges

Summary

Invoice Discounting is a powerful financial tool that bridges the gap between sales and collections. When used thoughtfully, it strengthens cash flow, supports business growth, and provides flexibility without long-term financial commitments. Proper controls, clear agreements, and regular monitoring are key to using this document effectively within day-to-day business operations.

Basic Information

Module: Accounts
Document Type: Other

Fields

Field Name	Label	Type	Required	Options	Description
posting_date	Posting Date	Date	✓	-	Accounting posting date for invoice discounting entry in Dafater
loanstartdate	Loan Start Date	Date		-	Date when discounted loan period starts in Dafater
loan_period	Loan Period (Days)	Int		-	Total loan duration in days for discounted invoices
loanenddate	Loan End Date	Date		-	Date when discounted loan period ends in Dafater
status	Status	Select		Draft, Sanctioned, Disbursed, Settled, Cancelled	Current lifecycle status of invoice discounting in Dafater
company	Company	Link	✓	Company	Company under which invoice discounting is recorded in Dafater
invoices	Invoices	Table	✓	Discounted Invoice	List of customer invoices included for discounting
total_amount	Total Amount	Currency		Company:company:default_currency	Total discounted amount received against selected invoices
bank_charges	Bank Charges	Currency		Company:company:default_currency	Charges deducted by bank for invoice discounting
shorttermloan	Short Term Loan Account	Link	✓	Account	Short term loan liability account used in Dafater
bank_account	Bank Account	Link	✓	Account	Bank account where discounted funds are received
bankchargesaccount	Bank Charges Account	Link	✓	Account	Account to record bank charges in Dafater
accountsreceivablecredit	Accounts Receivable Credit Account	Link	✓	Account	Receivable account credited during invoice discounting accounting
accountsreceivablediscounted	Accounts Receivable Discounted Account	Link	✓	Account	Receivable account representing discounted invoices in Dafater
accountsreceivableunpaid	Accounts Receivable Unpaid Account	Link	✓	Account	Receivable account tracking unpaid invoices after discounting
amended_from	Amended From	Link		Invoice Discounting	Reference to original invoice discounting record amended in Dafater

Child Tables

Invoices (Discounted Invoice)

Field Name	Label	Type	Required	Options	Description
sales_invoice	Invoice	Link	✓	Sales Invoice	Linked sales invoice being discounted in Dafater.
customer	Customer	Link		Customer	Customer associated with the discounted invoice in Dafater.
posting_date	Date	Date		-	Date the discounted invoice is recorded in Dafater.
outstanding_amount	Outstanding Amount	Currency		Company:company:default_currency	Remaining unpaid amount of the invoice at discounting time in Dafater.
debit_to	Debit to	Link		Account	Account debited for discounted invoice transaction in Dafater.

Permissions

Role	Read	Write	Create	Delete	Submit	Cancel
System Manager	✓	✓	✓	✓	✓	✓

DocType	Relationship	Module
Account	Links to	Accounts
Company	Links to	Setup
Invoice Discounting	Links to	Accounts

Invoice Discounting

Overview