What is Invoice Discounting?
A complete guide to the asset class — how sellers unlock cash from unpaid invoices, who the four participants are, and why this structure creates compelling returns for investors.
The core idea
Every business that sells goods or services on credit faces the same friction: the invoice is raised today, but payment arrives 60, 90, or even 120 days later. During that wait, the seller has real cash needs — salaries to pay, raw materials to buy, orders to fulfil.
Invoice discounting solves this by turning that waiting period into immediate liquidity. The seller (borrower) brings their unpaid invoice to Vridi, and investors collectively fund an advance against it — typically 80–95% of the invoice value — in exchange for a return when the buyer eventually pays.
The seller gets cash today. The investor earns a return over a short, defined tenure. The buyer pays as normal at the invoice due date. No one is worse off — the system redistributes the waiting cost efficiently.
"It's not a loan in the traditional sense. The invoice itself — a real commercial obligation — is the collateral."
How it differs from a traditional loan
In a standard business loan, the bank evaluates the borrower's creditworthiness — their balance sheet, profitability, existing debt levels. The borrower receives money and repays from future earnings.
Invoice discounting is structurally different. The advance is tied to a specific, verifiable commercial transaction. The repayment source is not the seller's general cash flow — it is the buyer's payment of that particular invoice. This makes the risk analysis fundamentally different.
Key distinction
The credit analysis focuses heavily on the buyer (who will repay) and the invoice (is it genuine, undisputed, confirmed?), not just the seller. This is why large corporates as buyers significantly reduce risk — they're more likely to pay.
The four participants
Every invoice discounting deal involves four parties:
Seller / Borrower
The MSME that raised the invoice. They submit it on Vridi, receive the advance (minus fees), and are responsible if the buyer doesn't pay.
Buyer / Drawee
The corporate that owes money on the invoice. Their payment at maturity is the repayment source. The stronger the buyer, the lower the risk.
Platform — Vridi
Verifies the invoice, publishes the deal, manages the escrow flow, collects repayment, and distributes returns. Vridi does not use its own capital to fund deals.
Investors
Individuals (like you) who collectively fund the advance. You earn a pre-determined return over the deal tenure, paid from the buyer's repayment.
The deal lifecycle
Invoice raised
The seller completes a sale and raises a GST invoice on the buyer. The goods or services have been delivered.
Verified by Vridi
Vridi's credit engine (Kredy) verifies the invoice against GST records, confirms it's undisputed, and evaluates buyer strength.
Deal published
The deal goes live on the platform with the deal amount, discount rate, tenure, and risk rating. Investors can browse and invest.
Fully funded
Once investors collectively commit the required amount, the deal closes. Funds are locked in the Disbursement Pool escrow.
Disbursement
Vridi disburses the advance to the seller (after admin approval). The seller can now run their business.
Repayment
On or before the due date, the buyer pays the invoice. Vridi collects this via PID or SID escrow routes.
Returns distributed
Vridi distributes principal plus earned returns to each investor's wallet. You can reinvest or withdraw.
A worked example
Let's make this concrete. Assume a deal with the following parameters:
Return calculation:
Return = ₹50,000 × 12% × (90 / 365)
Return = ₹50,000 × 0.12 × 0.2466
Return = ₹1,479
At maturity (day 90), you receive ₹51,479 back in your wallet. That's ₹1,479 earned over 3 months on ₹50,000 of capital.
Why the returns are better
A 12% annualised return — roughly 2–5× what an FD pays — demands an explanation. There are two reasons:
Illiquidity premium: Your capital is locked for the deal tenure (typically 30–120 days). You can't exit early. Investors are compensated for accepting this constraint.
Friction arbitrage: Banks are structurally slow and collateral-heavy when lending to MSMEs. The gap between what banks charge and what institutional credit engines can safely underwrite creates room for investors to earn a meaningful spread. Vridi captures that gap and passes most of it to you.
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