For transport companies and fleet owners, managing working capital efficiently is critical to ensuring smooth functioning of day-to-day operations. However, cash may get blocked as client payments against completed deliveries often get delayed by weeks or even months, leading to strained liquidity.
This impacts the ability to pay for fuel, truck repairs, staff salaries and other overheads on time. An innovative solution that brings much-needed liquidity is challan discounting, which provides financing against unpaid freight bills.
In the sections below, we'll discuss how businesses can enhance cash flow with challan discounting, ensuring smooth operations and improved financial stability.
Understanding Challan Discounting
Challan discounting typically allows transporters and logistics companies to receive short-term funding against their unpaid freight bills by getting them ‘discounted’ with financial institutions. This helps convert their accounts receivables into immediate usable capital to meet working needs instead of waiting 30-90 days for client payments.
Essentially, challan discounting helps monetise receivables faster by advancing money against bills before their actual payment deadline. The discounting company charges a small fee and interest for its services and bears the client default risk.
Features of Challan Discounting
Reputed challan discounting financial institutions offer several benefits, some of which are discussed below:
1. Finance for Freight Bills
Transporters can typically avail financing of up to 90% of their unpaid freight bills without cap on the number. This provides ready capital to cover operational expenses like fuel, driver salaries, and inventory restocking, which keeps the wheels running.
2. Wide Range of Vehicle Loans
Small fleet owners can usually avail challan discounting schemes with just 1-2 trucks to large operators with 50+ vehicles. The financing amount is customised based on the number of unpaid challans submitted and the finances needed.
3. Quick Approvals and Disbursals
The documentation and eligibility criteria are minimal for challan discounting schemes, allowing quick approvals. Digital processes further speed up the process. Once approved, the discounted amount is directly transferred via NEFT, enabling swift access to funds when required.
4. Minimal Documentation
Only basic KYC documents, such as ID proof, address proof, bank statements, and GST registration, are required for discounting. No collateral security or audited accounts are needed, as the challans act as surety, saving time.
5. Convenient Tenure Options
The repayment period is quite flexible, usually up to 12 months. Transporters can select a tenure aligned to their working capital cycle based on client payment terms to repay dues comfortably without cash strains.
How Cash Flow with Challan Discounting Helps Businesses
Challan discounting unlocks working capital tied up in unpaid freight bills. The challan financing impact is significant - it improves liquidity, provides financial stability and facilitates business growth for transporters.
1. Improved Liquidity
The biggest benefit is enhanced working capital availability by unlocking funds held up in unpaid freight bills, which take months to recover. This capital can be utilised to manage daily trip expenses, pay staff salaries, procure inventory, and prevent operational disruptions due to cash crunches.
2. Reduced Financial Stress
With ready capital in hand to cover overhead costs, transport companies feel less financial strain and stress. Their focus stays on optimal service delivery rather than worrying about meeting obligations. Timely payments also improve staff motivation levels.
3. Enhanced Business Opportunities
Improved liquidity and financial strength enable transporters to bid for more delivery routes, take on new contracts and grow their fleet size if needed. It opens doors for business growth leveraging the power of finance.
4. No Additional Collateral Required
Challan discounting programs are collateral-free, with only the freight bills, either physical or e-way bills, pledged. It saves transporters the hassles of mortgaging other fixed assets or paying security deposits to raise funds for working capital needs.
5. Strengthened Supplier Relationships
When transport companies have access to steady capital, they can make timely payments to their own vendors—spare parts suppliers, fuel companies, etc. This fosters trust, turning trade partners into long-term business allies benefiting everyone.
6. Digital Processes
Reputed challan discounting NBFCs have user-friendly mobile apps and web portals with digital documentation, eKYC and E-Mandate capabilities for faster processing. This allows quick registration, uploading bills and receiving discounted amounts into bank accounts through seamless workflows.
7. Insurance Cover
Most banks and NBFCs also provide goods insurance coverage against fire, accidents, and natural disasters during transit, offering protection against unforeseen incidents.
These benefits explain why logistic companies should actively assess quality challan discounting programs to leverage them. These programs empower transporters to scale greater peaks despite the ridges and troughs of business volatility.
Eligibility Criteria for Challan Discounting
Challan discounting facilities have minimal eligibility criteria, such as:
- Documentation: Only basic KYC and business documents typically required
- Business Vintage: Should generally have been operational for at least 3 years
- Credit Score: Preferred score of 750+ on credit bureaus
- Business Type: Sole proprietorship, partnership, private limited or limited companies
- Turnover: Annual turnover of ₹50 lakhs and above preferred
Note: Eligibility criteria for cash flow with challan discounting varies by providers. Transporters should verify terms upfront before applying.
Conclusion
Managing working capital is critical for transport companies to sustain continuous growth in today's dynamic environment. However, disrupted client payments often lead to overdues and cashflow mismatches, affecting day-to-day functioning.
Challan discounting emerged as an innovative avenue providing financing against unpaid freight bills. This unlocks capital tied up in unrealised dues to resolve temporary shortfalls. With an established partner, funds can be secured against submitted bills through seamless digital finance.
