Definition
Invoice Discounting
Invoice discounting as an investment lets you fund a business's unpaid invoices in exchange for a return when the invoice is paid; it carries credit and platform risk.
In invoice discounting, a business with money owed by customers (receivables) raises short-term funds by selling those invoices at a discount. As an investor on a platform, you provide the funds and earn the difference when the buyer pays the invoice.
Returns are typically short-tenure and quoted as an annualised yield, but they are not guaranteed — if the end customer delays or defaults, your returns and even principal are at risk. Diversifying across many invoices and creditworthy counterparties helps manage this.
SEBI has introduced regulated avenues (such as those linked to its receivables/EaaS frameworks) to formalise parts of this market. Treat invoice discounting as a higher-risk, alternative fixed-income option, not a deposit substitute.
Related terms
- P2P LendingPeer-to-peer lending is an RBI-regulated model where individuals lend directly to other individuals through an NBFC-P2P platform, which matches lenders and borrowers.
- Bond Investing PlatformsBond investing platforms are SEBI-regulated online avenues, including Online Bond Platform Providers, that let retail investors buy listed corporate and government bonds in small lots.
- Corporate FDA corporate fixed deposit is a deposit with a company or NBFC offering a fixed interest rate, usually higher than bank FDs, but without bank-style deposit insurance.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.