Bill Discounting & Factoring Calculator – Calculate MSME Working Capital & Advance Cash

Bill Discounting (Invoice Factoring) is a working capital trade financing arrangement where an MSME business sells its unpaid customer invoices to a bank or financier at a small discount to receive immediate upfront cash (80%-90%) rather than waiting 30 to 120 days for customer payment.

TReDS (Trade Receivables Discounting System) is an institutional online auction mechanism set up by the Reserve Bank of India (RBI) allowing MSMEs to auction their invoices to multiple banks and NBFCs at competitive interest rates (7% to 10% p.a.).

In with-recourse factoring, the supplier remains liable to repay the financier if the buyer defaults. In without-recourse factoring, the factoring bank absorbs the credit default risk.

Formula: Discounting Fee = Advance Amount × Annual Interest Rate × (Credit Tenure in Days / 365).

The Reserve Amount (typically 10% to 20% of invoice face value) is retained by the financier until the buyer makes the final payment on the due date, after which the reserve is released to the seller.

The corporate buyer pays the full invoice face value directly into the financier’s escrow account on the agreed due date (e.g., 60 or 90 days).

No! Bill discounting is backed by the creditworthiness and accepted invoice of the corporate buyer, requiring no real estate or physical machinery collateral.

Yes! All factoring and bill discounting charges are 100% tax-deductible as business financing costs under Section 37(1) of the Income Tax Act.