Bill Discounting services by Citi bank can bring in the much needed cash flows into the business at the right time. Cash is the lifeline of a business and there are many strategies to help businesses manage their cash flow. Bill Discounting by Citi bank is one of such most effective strategies. There can be serious financial challenges for vendors, in case they have to wait for months to receive payments. Bill Discounting by Citi bank comes to their rescue in this regard by allowing businesses to get their payments quickly by selling their unpaid invoices to a bank or a financial institution at a discount. With this approach, cash becomes available to them easily and helps them run their operations smoothly.

Definition – Bill Discounting from Citi Bank

Bill discounting is a method wherein, without waiting for the customers to pay, its accounts receivable, for example bills or invoices, are sold by a business to Citi bank or financial institution in exchange for immediate payment of cash at a discounted price. When such bills or invoices become due, full payment is collected from the customer by Citi bank or the financial institution,

Process of Bill Discounting by Citi bank

Creation of an Invoice or a Bill

When goods or services are provided to a customer by a business, a bill or invoice with a future payment date is created, which includes details like the invoice date, due date, amount and buyer’s information.

Submission to Citi bank or Financial Institution

The business submits the bill or invoice to the bill discounting provider like Citi bank or other financial institutions, which reviews the invoice to ensure it meets the eligibility criteria.

Verification and Approval by Citi Bank

The bills or invoices, as the case may be, are verified by the provider with the buyer to ensure their accuracy and authenticity. Once satisfied creditworthiness of the buyer and the legitimacy of the bill and invoices are approved by the Citi bank for discounting.

Calculation of Discounted Bill Value by Citi Bank

The discount amount is calculated by the Citi bank taking into account the invoice value, discount rate, and the time period.

Bill Discounting Payment to the Seller by Citi Bank

Once approved, the funds are disbursed to the seller by the Citi bank minus the discount amount. Thus, immediate payment is received by the seller, improving his cash flow.

Collection from Customer:

When the due date arrives, the full bill amount from the customer is collected by the Citi bank or financial institution.

Bill Discounting Settlement by Citi Bank

After collecting the full amount from the customer, the Citi bank settles the transaction by retaining its fees and interest, and returning the remaining amount, if any, to the business

An Example of Bill Discounting by Citi Bank

Company XYZ Limited is in the business of office stationery and has supplied some office stationery to a Firm namely Ram Enterprises. If the invoice amount is, say it is Rs. 2,00,000. The buyer i.e. Ram Enterprises will make the full payment after 90 days.  The discount rate is 12% per annum (1% per month)

But if the money is needed by XYZ Limited before 30 days, Ram Enterprises will issue XYZ Limited a letter of credit from the bank for 30 days. XYZ Limited can approach Citi bank and collect payment against that invoice much more quickly. To make this ‘advance payment’, Citi bank will charge some interest from XYZ Limited. So, XYZ Limited will get a discounted amount from the bank. Assuming the discount rate is 3%, the bank will charge you Rs. 6,000 and deposit Rs. 1,94,000 in XYZ’s Limited account. After expiry of 30 days, Rs. 2,00,000 will be collected by the bank from Ram Enterprises.

Thus, in this way, that particular invoice would get settled.

Need For Bill Discounting from Citi Bank

Bill Discounting from Citi Bank Improves Cash Flows:

Every business – whether big or small – depends on cash flow for survival and growth. This can be done through bill discounting by infusing a quick cash flow into the business. This way, businesses can receive about 90-95% of the invoice value in just a day or two from Citi bank, instead of waiting for the customers to pay. Thus, businesses are helped to survive and flourish as they can have the cash, they need right away to cover expenses and invest, wherever required.

Bill Discounting from Citi Bank Provides Instant Access to Cash:

Regular cash is required to make payments to suppliers, employees or to cover operational costs. Thus, bill discounting by Citi bank enables companies to manage their cash flow needs effectively, without relying on loans or credit and reducing the risk of bad debts and late payments.

Bill Discounting from Citi Bank facilitates Investment in new Opportunities:

Bill discounting by Citi bank enhances liquidity, through which businesses can capitalize on available opportunities without waiting for incoming payments.

Bill Discounting from Citi Bank Reduces Bad Debts Risk:

By using bill discounting, this risk can be transferred by businesses to the financiers, who then become responsible for collecting the outstanding payments. This helps businesses avoid potential losses from non-payment by customers

Bill Discounting from Citi Bank Avoids Loan Dependency:

Bill discounting from Citi bank is not a loan but a sale of an asset i.e. the receivable. Thus Businesses can use it as a more flexible alternative instead of taking on new debt or loans. It does not involve much documentation and the seller is not required to provide any collateral security to get the funds.

Bill Discounting from Citi Bank Promotes Growth and Expansion:

Bill discounting can help businesses invest in growth and meet essential expenses. By converting receivables into cash, necessary funds are always available for businesses to grow and expand their operations.

Difference Between Bill Discounting from Citi Bank and Loan

Factor	Bill Discounting	Loan
Nature	A short-term financing solution based on receivables.	Long-term or short-term financing for various purposes.
Speed	Quick within 2-3 days.	It can take time due to Paperwork and credit checks
Mode	Generally manual but Citi Bank offers online solutions too	Completely digital
Collateral	Collateral such as property or other assets not required as the bill serves as security.	Require collateral or guarantees.
History of Credit	It focuses on the reliability of one’s customer’s credit history.	It focuses on the reliability of one’s own credit history.
Repayment	When the bill matures, payment is made by the debtor and the balance are settled by financial institution/ Citi bank.	Repayment is made in instalments over a fixed period regardless of business performance.
Interest Charges	The institution/Citi bank charges a discount rate based on the maturity period of the bill.	Loans incur interest charges based on the principal amount.
Fees	Invoice discounting fees can be higher than loan interest rates.	loan interest rates can lower than Invoice discounting fees.
Purpose	Primarily used for working capital or short-term financing.	Used for long-term investment or ongoing business expenses.
Approval	The approval process is faster, typically based on the debtor’s creditworthiness.	The loan approval process is usually more complex and involves detailed financial analysis.

Eligibility Criteria for Bill Discounting from Citi Bank

Tenure of the Business:

It is important that the business should have been in existence for a reasonable period of time. It is easier for established businesses, which have a track record of operations, to get their bills discounted from Citi bank.

Nature of Receivables:

Citi Banks and other financial institutions are less likely to discount near-maturity or overdue bills. Thus, receivables should not be too old. Further, a bill of exchange or promissory note should be issued for goods or services provided to a trusted customer.

Creditworthiness:

The business must have a strong credit history and the customers i.e. debtors should also be reputable and have a proven track record of making timely payments. This is another criteria that the Citi bank prefers for bill discounting for its clients.

Reputation of the Business:

The popularity of the business and its standing in the market are also key factors in consideration for Bill discounting by Citi bank.

Invoice Value:

Financial institutions like Citi Bank, often set a minimum invoice threshold for bill discounting.

Documents Required for Bill Discounting from Citi bank

• Business Registration Documents: Proof of the business’s legal standing
• Business PAN card and address proof
• Applicant’s Aadhar card.
• GST Returns
• Financial statement with an audit report and Income tax return .
• Passport-sized photographs and duly filled application form
• Last 12 months’ bank statements
• Bill of Exchange or Promissory Note: A copy of the bill to be discounted, including terms and conditions.
• Letter of Credit
• Commercial Invoice
• Packing list with all the details
• Details of Logistics with a copy of the delivery note, if any
• Submission of proof of certificates, registrations, licenses, and permits, if any
• Any other document which may be required

Steps involved in the Application for Bill Discounting with Citi Bank

Following are the steps to apply for Bill Discounting from Citi bank or other financial institutions:

Selection of an Ideal Financial Institution

It is absolutely necessary that for bill discounting the right financial institution or bank may be chosen in order to optimize cash flow management. This can be achieved by conducting a thorough review of the various terms and conditions of different institutions including:
• Discount rates, which should be competitive
• Criteria of Eligibility
• Associated fees
After comparing all these factors, an informed decision can be made by a business and selection of the financial institution, as reliable as Citi Bank, or the one that best aligns with their needs; can be made.

Required Documents Collection

Next, the collection of all the necessary documents is to be made like, Bill of exchange

• Invoices
• Proof of delivery
• Financial statements
• KYC documents

This will help expediting the application process with Citi bank or other financial institutions.

Submission of the Application

After collection of the necessary documents, the bill discounting application can be submitted to the Citi Bank or other selected financial institution, either online or by in-person submissions, based on the facility available.

Evaluation of Creditworthiness

Creditworthiness of both the business and the debtor shall be evaluated by making an assessment of the bill by the Citi bank or other financial institution, as the case may be. This may involve reviewing

• payment history of the debtor,
• financial standing, and
• the financial health of the business

Signing the Bill Discounting Agreement with Citi Bank

If the bill discounting request is approved by the Citi Bank, an agreement is signed outlining the

• discounting arrangement, including
• the discount rate,
• payment timelines, and
• fees.

Receiving the Discounted Amount by Citi Bank

After signing of the agreement, an upfront payment, typically 80-90% of the bill value, is provided to the business by Citi Bank or the other selected financial institution. The remaining balance is paid to the business after the debtor settles the bill.

Final Settlement

When payment is made by the debtor, its fees and interest are deducted by Citi Bank or other financial institution and the remaining amount is returned to the business completing the bill discounting arrangement.

Advantages of Bill Discounting by Citi Bank

Immediate Cash

Immediate cash is provided by bill discounting from Citi Bank to businesses by converting accounts receivable into cash.

No Collateral Required

Businesses are not required to offer assets as collateral to the Citi Bank for Bill Discounting. Thus, businesses are not required to pledge any real estate, inventory, machinery, or the like.

Credit profile

A business’s credit profile can be improved through regular use of bill discounting, which can unlock more favorable financing opportunities from the Citi Bank in the future.

Confidentiality Maintained

Businesses can access funds without disclosing financial information to their clients or suppliers. Thus, confidentiality is preserved through bill discounting arrangement from Citi Bank.

Expansion of Business

Business owners can redirect their focus on expansion and development by leveraging bill discounting from Citi Bank.

Disadvantages of Bill Discounting from Citi Bank or Other Lenders

The process of bill discounting from Citi Bank or other lending institutions have some disadvantages and also certain inherent risks like

Cost:

Cost of funds makes Bill Discounting more expensive as compared to other financing options like bank overdrafts or credit cards.

Bad Debt Risk:

There may be a risk that the buyer may fail to pay or become insolvent, which can impact the business’s cash flow.

Risks of other types:

There may be a risk of fraud or illegitimacy of transactions during bill discounting.

Conclusion:

Every business needs money to run its operations. Under this option, there is no need for additional collateral, with the result that there is minimal impact on the company’s existing assets. Bill discounting from Citi Bank helps businesses obtain immediate cash by selling their receivables like invoices or bills of exchange, to a bank or financial institution at a discounted rate. Therefore, while bill discounting offers short-term financial flexibility, businesses must carefully assess the costs, risks, and their long-term cash flow management strategy, before opting for this financing option.

Bill Discounting from Citi bank also helps in maintaining operational continuity and there is no pressure on the business to follow overdue payments. This can be especially vital for those businesses which have large volumes of receivables or which are operating in industries where payment cycles are long. Also, bill discounting from Citi bank can be a strategic tool for those businesses which are keen to enhance their working capital without taking on long-term debt. However, as there are chances of eroding profit margins over time, it has to be ensured by businesses that they properly manage the associated costs of discounting.