Invoice Discounting
Invoice discounting is a method whereby a company can obtain a short-term loan from a bank or finance company on the strength of its unpaid sales invoices as collateral. This facility provides for cash flow without awaiting customer payments.
In ERPNext, you can manage Invoice Discounting directly from:
Home > Accounting > Banking and Payments > Invoice Discounting
1. Prerequisites
Before creating an Invoice Discounting entry, set up the following ledgers:
Short Term Loan: Under Current Liabilities > Loans (Liabilities).
Bank Account Charges: Expense ledger for bank fees.
Accounts Receivable Credit Account: Control account of type Receivable.
Accounts Receivable Discounted Account: Tracks invoices that are discounted.
Accounts Receivable Unpaid Account: For discounted invoices that remain unpaid after the loan period.
2. Creating an Invoice Discounting Transaction
You may create a new Invoice Discounting entry after the ledgers are configured.
Click "New" in the Invoice Discounting list.
Complete the Posting Date, Loan Start Date, and the Loan Period (in days).
You can select invoices manually or by clicking the Get Invoices button, which allows you to filter invoices by customer, date range, or amount.
Select the proper accounts, which are the Short Term Loan, Bank, Bank Charges, and Receivable accounts.
Save the form and submit it.
Once you submit your application, select the "Disburse Loan" option, which will create a "Journal Entry" automatically. Carefully review it before you submit it.
Important Features
With Invoice Discounting, ERPNext v15 has several handy features:
- Easily Import Invoices
You can retrieve invoices by customer, date, or amount by clicking the Get Invoices button.
You can apply more than one filter for increased accuracy.
- Closing the Loan Made Easy
You can close the loan by clicking "Close Loan" on maturity or ahead of time.
You can review and post the repayment Journal Entry that ERPNext does on your behalf.
- Automatic Adjustments to the Ledger
When the loan is not reimbursed at the loan term expiration, ERPNext will automatically transfer amounts from the Discounted Account to the Unpaid Account by a scheduled task. This facilitates easy monitoring of outstanding invoices.