Invoice Discounting

Discover more about this financing option, the benefits of it and how it can help your business?

The Invoice Discounting process

Invoice your customer

An invoice is sent to the customer who may have up to 90 days to pay from receipt of document.

Inform your factoring company

A copy of the invoice is sent to your factoring company and a trustee's account is set up.

Funds are released

The factoring company will release an agreed percentage of the invoice value to you, usually within 24 hours.

Your customer pays the invoice

When you eventually receive payment from your customer the money is placed in a trust account. The factoring company release the remaining value minus their fees.

This confidential financing option is a flexible solution which can bolster your cash flow immediately by injecting cash against the value of your outstanding invoices within 24 hours.

What is invoice discounting?

If you’re currently struggling with your cash flow, then this financing option could be the perfect solution for your business provided that you sell products and/or services on credit terms to other businesses. Many businesses find that debtor balances are by far their greatest asset on the balance sheet, but they typically turn into cash at a much slower rate than is ideal. This can lead to a shortage of cash just when you need it most and can hamper your businesses expansion. Invoice discounting can counter this by providing up to 90% of your invoice in cash within 24 hours. This ensures you have plenty of cash available to make day to day payments and expand your business.

By using this procedure, it can provide the complete solution to:

  • Slow-paying customers – By providing you with cash within 24 hours, you are then protected from slow paying customers that may leave you short of cash.
  • Looking after your important customers – the cash made available allows you the opportunity to give your valued customers extended credit, increasing their chances of buying from you and strengthening your working relationship.
  • Shortage of working capital – By always having cash on hand you can ensure that suppliers are paid on time and you will never be charged for late payments. You may also be able to negotiate better deals and discounts with your suppliers, in exchange for faster repayment.
  • Protection against bad debt losses – Providers of invoice discounting will offer insurance against bad debts, meaning that if a customer defaults on a debt the lender absorbs the cost rather than your business.

Invoice discounting is available in the UK market for businesses with:

  • Strong credit control and account management procedures – you can retain your own credit control functions, therefore a strong credit control team needs to be in place to liaise with your customers and ensure repayments are made on time.
  • Profitable trading – it is an excellent means of improving the liquidity of a business, allowing you to expand and increase profitability.
  • Annual turnover above £100,000 – Most providers suggest a business should have an annual turnover of at least £100,000, as this usually means it will have enough money tied up in its sales ledger for this process to be viable.

How does invoice discounting work?

It is one of the most flexible funding solutions available and it works by providing you with cash whenever you raise an invoice to your customers. Essentially, you raise an invoice to your customer and present a copy of it to your invoice discounting provider. Your provider will then pay you up to 90% of the invoice value within 24 hours, enabling you to make day to day payments and reap the rewards from your suppliers by paying promptly and in full. You then take full charge of reclaiming the balance due from your customers, meaning that often your use of these financing facilities remains completely confidential. When your customer repays you the money goes into a trust account provided by your lender, at which point the remaining value of your invoice minus their fees is made available

Generally speaking, this option is only available to businesses with a proven track record and an established credit control team to ensure the customer pays. Exceptions may be made in some instances and it is worth keeping in mind invoice discounting is not the only service available, for instance, factoring. Factoring is a similar process except for the lender becomes responsible for credit control. For more information on what process may be suitable for your businesses situation, get in touch today.

What are the benefits?

Invoice discounting is usually provided as a confidential facility, more commonly known within the commercial finance industry as confidential invoice discounting. It allows you to be in full control of your sales ledger at the same time as providing flexible funding which grows simultaneously with your business needs. Other benefits include:

  • The certainty of immediate and growing working capital– The more sales invoices you generate, the more working capital is made available to you. This means that your available finance grows with your business.
  • Freedom– to obtain early payment discounts and more favourable terms from your suppliers.
  • Preserve your credit rating – The instant availability of cash this finance option provides will ensure you have sufficient funds to make prompt payments to your suppliers. This should boost your credit rating and help to preserve it.
  • Unique sales advantage – As your strong liquidity position will allow you to offer extended credit to your customers and re-enforce your relationships.
  • Discretion– The confidential nature of an invoice discounting facility means that generally your customers will not be aware of the fact that you are financing your debtors.
  • Control– Retain complete control over sales ledger management and collections.
  • Flexibility– No need to constantly renegotiate your facility.
  • Security – Many providers will offer an insurance policy bad debts, at an additional cost, meaning your business will be protected should the customer default on repayments to you.

How much does this process cost?

The costs associated vary from case to case, as each facility is taken on its own merits and the price depends on numerous factors such as workload, risk and whether bad debt protection is required. For the most accurate breakdown of prices, call us free on 0800 084 3923 for confidential advice on invoice discounting.

What’s the difference between invoice discounting and factoring?

Both services provide finance against outstanding debtor balances. Factoring provides the additional advantage of a full sales ledger and collections service – the factor takes on the responsibility for your sales ledger, freeing up your work force for more important matters. This is one reason why factoring is generally more expensive. With invoice discounting you continue to administer the sales ledger and the service is often undisclosed to customers.

More information can be found on the governments Business finance explained page.

Is this confidential?

An invoice discounting facility is usually offered confidentially so your customers are unaware that you have any involvement with a factoring provider. You remain in control of your credit control and are free to do so in whichever manner you like, meaning you can protect your brand reputation and your levels of customer service.

Give us a call on 0800 084 3923 or fill in our enquiry form to see what kind of deal we can find for you, with no obligation.

At WF Finanical Solutions we work closely with a wide range of finance providers so we are well placed to offer you the dest finance deal.
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