GST Documents Needed for Invoice Discounting And Trade Finance

Trade finance and invoice discounting are financial services that aid in working capital and cash flow management. To access these financial products, businesses must have the appropriate documentation for GST compliance. This article will explain all the documentation required for availing these financial services. The guide will also outline the role of GST invoices, credit notes, eligibility tests, and compliance standards in order to avoid complications during the financing process.

The Role of GST Documents for Invoice Discounting and Trade Finance

Invoice discounting is a practice of selling unpaid invoices to financiers at a discounted amount, allowing the business to receive the cash in advance. Since the invoice includes GST, financiers also need documentation that meets GST invoice requirements for trade finance. Additionally, documentation would further ensure that invoices were not potentially fraudulent or non-compliant.

The GST documentation serves several purposes: 

• To validate that the sale of goods or services has occurred.
• Demonstrate that the goods or services were received by the business.
• Legally transfer the right to claim when a request is made to the financing institution.
• It protects the integrity of input tax credits. 

Having the required GST paperwork for invoice discounting helps speed up finance approval and supplier payment.

Essential GST Documents for Invoice Discounting and Trade Finance

For invoice discounting and trade finance, the following Goods and Services Tax (GST) papers are required: 

• GST Compliant Invoice: This includes the supplier and buyer’s GSTIN, the invoice number, date of the invoice, taxable value, GST rates by jurisdiction, and total amount of tax charged for the taxable supply. 
• Proof of Delivery: Proof of delivery will include signed delivery challans, shipping documents, or another receipt to confirm actual delivery of the goods/services invoiced.  
• Financial Statements: Audited financial statements that contain balance sheets and profit and loss statements that address the health of the business are essential GST documents for invoice discounting verification.
• GST Credit Notes: Credit notes are issued in the event of any adjustments to the invoice value and should have proper documentation. It also ensures alignment with GST credit note rules and trade finance.
• Bank Statements and Proof of Payment: Bank statements and proof of payments, which confirm receipts and partial settlements, are better warranted for confirming the invoices.
• Business Registrations & GST Certificates: Business registration and GST certificates are meant to confirm legitimacy and speed up verification under the Goods & Services Tax regime.

GST Invoice Requirements for Trade Finance Compliance

It is essential to meet the following GST invoice requirements for trade finance for financiers to consider invoices for discounting purposes:

• The invoice must be issued to a registered person in accordance with GST law. 
• All proof of delivery documentation must contain a unique serial number in a sequential format. 
• The supplier must provide supplier details (name, address, GST registered number) and purchaser details. 
• Must contain a description of the goods/service with HSN/SAC codes. 
• The tax invoice must state the date and place of supply, and provide an original or digital signature of the supplier. 
• There must be a total taxable value, a GST rate, and a tax amount (CGST, SGST, IGST as relevant).

Invoices missing one of these pieces of information will be rejected as part of the trade finance GST invoice compliance.

GST Credit Note Rules and Their Significance in Trade Finance

Credit notes are essential documents for GST compliance, where invoices are discounted for trade finance. They are generated to amend the value of a GST invoice when goods have been returned, when a discount is applied, or when the customer adjusts the price after the invoice is issued. 

In trade finance, proper accounting and documentation of credit notes ensure transparency and accurate valuation of invoices presented for financing. If credit notes are not accounted for or if the values are incorrect, it can lead to disputes, delayed disbursement of funds, or tax compliance issues. 

GST rules require credit notes to state the reason for the adjustment, which could include return of goods or a discount after the invoice was generated, and the credit notes should be accounted for within a prescribed timeframe.

To a financier, a credit note will adjust the amount of funds available for discounting or to be funded under trade finance, as it will reflect the correct outstanding receivable value. Therefore, exporters and financiers should ensure that credit notes are correctly documented and that the exporter’s books are reconciled with the credit note entries and the exporter’s GST return details for tax compliance to avoid tax and cash flow complications.

Invoice Discounting Eligibility GST Norms: Comprehensive Criteria

Eligibility for invoice discounting under GST goes beyond a business’s credit assessment — it is closely tied to the business’s compliance with GST regulations. Suppliers and businesses sourcing invoice discounting must fulfill the following invoice discounting eligibility GST norms: 

• GST Registration: The business issuing the invoice and its customer will be assessed and reviewed for their GST registration status to demonstrate a taxable transaction.
• Genuine GST-compliant Invoice: GST-compliant and legitimate documents can be discounted against the invoices that have been issued as per the trade finance GST invoice compliances.
• Customer Satisfactory Payment Track Record: The financier will look at the customers of the invoices to assess their payment history and credit score/rating before agreeing to discount financing.
• Filing GST Returns: The supplier applying wants to ensure they have filed timely GST returns demonstrating compliance with their returns and, therefore, are able to be audited.
• Age of Invoice and Payment Terms: Mainly, financing parties are funding invoices that will be less than the required maximum age (e.g., 90 days past due), and invoices will have acceptable and reasonable payment terms. 

When the foregoing conditions are met, the parties will have access to a smoother invoice discounting process with an easy and timely function that is competitive with its rate and aligned with the invoice discounting eligibility norms.

Best Practices for GST Compliance in Invoice Discounting and Trade Finance

Compliance with Goods & Services Tax laws is important to avoid possible complications in obtaining payment. Implementing the following GST best practices is essential to maximize the advantages of your finance arrangements: 

• Invoicing: Issue a GST-compliant invoice immediately following supply to avoid any trouble invoicing late. 
• Record Keeping: Keep copies of the necessary documentation, for example, invoices, credit notes, purchase orders, evidence of delivery, etc., that confirm the chain of transactions that ensure the invoice’s validity.
• Maintain Compliance: Ensure GSTR-1 and GSTR-3B are filed timely to make sure the record of the transaction can be kept alive and verifiable in the event of an audit.
• Reconcile Data: Regularly verify the transactional records against suppliers, customers, and identify mismatches in your GSTR filings. 
• Document Credit Notes: Document post-sale changes to the transaction promptly, instead of waiting for the end of the period to respond. 

Leveraging GST Documentation for Efficient Finance

Accurate documentation of GST is essential to making invoice discounting and trade finance work. It helps businesses quickly convert invoices to working capital while remaining tax compliant. Knowing the invoice elements, what rules there are for credit notes, and how to understand the rules and regulations for eligibility ensures a smooth financing process and helps to prevent any delays or rejection in the bank process. 

The continuous changes and development in the GST environment, with proper documentation and compliance, allow for quicker access to funds while also maintaining an audit-ready status and financial health. Credlix helps businesses navigate the nuances of invoice discounting and trade finance by implementing solutions for businesses to access liquidity and enhance growth opportunities.

Frequently Asked Questions 

Q1: Do credit notes directly affect the invoice discounting process?

Yes, credit notes have a direct impact on the invoice discounting process. Issuing a credit note against a discounted invoice will reduce the value of the receivable, thereby affecting the access to funds.

Q2: How important are GST compliance and documentation for trade finance approvals?

GST compliance and correct documentation are beneficial for improving approval for trade finance and compliance credibility.

Q3: Is GST registration required to participate in the invoice discount process?

Yes, GST registration is required for financing with the government-regulated GST process.