For businesses operating in Indonesia, managing working capital presents a constant challenge. This becomes particularly difficult when a significant amount of a company’s money is tied up in accounts receivable, especially those stemming from trade. The issue gets even trickier with the long payment cycles from both local and international customers, which can really put a strain on a business’s cash flow. This makes it hard for companies to invest in growth, expand their operations, or even manage their everyday expenses comfortably.
This is where bills discounting is useful. It is a reputable trade finance option that can successfully handle these working capital problems. To put it simply, it’s a financial service that enables a business to sell its bills of exchange or invoices to a bank or other financial institution at a discount, allowing them to immediately obtain cash. It’s an essential lifeline that converts upcoming payments into instant cash.
This trade finance solution can significantly help businesses enhance their cash flow. Here are some key points to explain how:
- Immediate access to working capital: This means the business can get cash right away. Instead of waiting weeks or even months for customers to settle their bills, the company can convert those future payments into cash today. This enables them to pay for supplies, cover employee wages, and manage other daily expenses without any problem.
- Often non-debt funding: In many instances, bill discounting is viewed as selling an asset (the customer’s bill) rather than taking on a new loan. This can be a real plus for a business’s financial health, as it doesn’t increase its official debt, which can be appealing to lenders down the line.
- Boosting liquidity and financial stability: By consistently converting future payments into immediate cash, a business can maintain a steady cash flow. This approach minimises the need for costly emergency loans or overdrafts. This allows the company to remain financially robust and stable, even when customer payments are delayed.
- Capitalising on growth opportunities: With cash on hand, a business can swiftly seize new opportunities. For example, it can purchase raw materials in bulk at a discount, invest in new equipment to enhance production, etc. all without the waiting for customer payments.
- Simpler and faster process: Compared to applying for traditional bank loans, obtaining funds through bills discounting is often quicker and involves less paperwork. This is because the customer’s accepted bill acts as a form of security for the bank or financier, streamlining the approval and disbursement process.
So these benefits show how bill discounting is one the trade finance solutions for improving the cash flow of businesses.
Supply Chain Finance
It is also important to supply chain finance (SCF) because it is kind of similar to bills discounting. However, it’s important for businesses in Indonesia to recognise that they are quite different. Bills discounting is more of a tactical tool that allows sellers to access cash for specific invoices, while SCF takes a more strategic and collaborative approach, initiated by buyers to enhance cash flow and strengthen relationships throughout their entire supplier network.
Also Read: Ultimate Guide to Export Factoring in Singapore for 2025
The Bills Discounting Process in Indonesia (Step-by-Step)
To truly grasp the advantages, it’s important to get a handle on how bill discounting works:
- Sale & bill issuance: A business in Indonesia sells its products or services and hands over a valid invoice, promissory note, or bill of exchange to the customer.
- Present to bank/financier: Next, the business takes this accepted bill to their bank or a financier that specializes in bill discounting services.
- Verification & discounting: The bank checks the bill and assesses the customer’s creditworthiness. After that, they provide the business with an advance payment, which is the bill’s face value minus any discounts or fees.
- Customer payment to bank: When the original due date arrives, the customer pays the full amount of the bill directly to the bank.
Now, after getting all the information related to bills discounting.
M1 NXT stands out as a leading provider of global factoring solutions. For businesses in Indonesia, it serves as a powerful tool for bills discounting by:
- Speeding up cash flow: It enables businesses to convert invoices into immediate working capital instead of waiting around for lengthy overseas payment terms.
- Simplifying administrative tasks: By taking on the complex process of international collections, it helps Indonesian companies steer clear of the headaches that come with cross-border paperwork.
- Creating competitive opportunities: As a digital marketplace, it connects businesses to a wider, competitive network of global financiers, allowing them to secure better rates.
- Providing regulated security: It is approved by International Financial Services Centres Authority (IFSCA). This means it can establish a trustworthy and compliant environment for international trade finance.
Conclusion
Businesses now know how the bills discounting can be helpful in improving cash. Besides, they have also learnt about the bills discounting process.
M1 NXT offers Indonesian businesses a modern, efficient, and secure solution to tackle the persistent challenges of international trade finance. It enables them to receive payments more quickly and manage their global operations with greater liquidity.