Cost of invoice discounting

For a lot of B2B businesses, the process of growing and expanding can be massively dependent on how you handle your invoices. Although all of the contracts can be there and there is room for expanding, if your invoices have longer repayment terms it can halt progress.

Invoice discounting gives you the ability to obtain an immediate advance for those invoices, whilst keeping control of your sales ledger. Effectively rather than perhaps waiting for up to 120 days to obtain payment, invoice discounting give you an immediate advance which can help your cash flow.

As with any kind of invoicing facility, there is the cost of invoice discounting. This might put off some companies from using an invoice discounting facility, but generally, the potential benefits outweigh the costs.

What costs are involved with discounting?

The first associated expense with the cost of invoice discounting, you’re likely to come across is the discount fee (also known as factoring fee or factor rate), which is the cost of having the facility. This is the rate the lender charges you on a weekly or monthly basis for releasing the cash, it’s very similar to the interest a bank would charge you for borrowing money.

If your invoices have a longer repayment term, you will pay more in your factor rate than an invoice with a shorter term. These charges are calculated on a percentage basis of the invoices value and usually range from between 0.5-5%. With discounting, as you keep control of your sales ledger, it can often be cheaper than invoice factoring as there is less work for the lender to do.

What can affect the cost of discounting?

Almost all providers of an invoice discounting facility will differ, so it is hard to pinpoint the exact costs involved. However, there are common costs involved with a discounting facility. The cost will vary dependent on the size of the business, the

• The quality of the invoices being discounted – are the clients in question reliable, stable businesses with a solid credit history?
• The efficiency of your credit control and maintaining a solid sales ledger – does your business have a good history when it comes to collecting invoices and good internal processes when it comes to your sales ledger. Have there been issues in the past with clients paying?
• The general overall strength of your business –does it have a strong history and a reputation within the market?

Factors which will increase cost:

Generally, there are two main costs associated with invoice discounting, and they’re fairly straightforward. They might not be applicable in all cases, but they are the most commonly encountered.

• An over-reliance on one or two big contracts – factors like to see a good spread of clients and not one or two clients bringing in all the money.
• A poor history of invoice management.
• Adverse credit history relating to your clients

What can we do for you

If you’re worried about late or unpaid invoices, but want to keep control of your sales ledger, invoice discounting could be the ideal solution. A facility can provide an injection of cash, which can help push your business in the right direction.

If you believe that invoice discounting could be the right option for you, but you’re concerned about the potential costs involved, don’t hesitate to get in touch. We can help guide you on the process and if it could be right for your business.

We can help you secure the best invoice discounting facility for your business, designed to fit the needs and growth of your business. We are ideally positioned to negotiate the right deal for you, working closely with the top blue-chip lenders, we can get exclusive rates and deals that otherwise would be unattainable. So, if you want to get your cash flow back on track and retain control over your credit facility, invoice discounting could be the right option for you.