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Invoice discounting

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Regular incoming payments are the lifeblood of a business’ cash flow. Once payments start taking a long time to clear, or a client stops paying on time, your cash flow can suffer. By granting your business fast access to cash, invoice discounting can help negate some of the issues late invoices and ones which take longer to process may cause.

The process involves selling your business’ unpaid invoices to a factoring company, who then advances you a percentage of the invoice’s value (up to 90% in some cases).

Compared with invoice factoring, discounting is, generally, a more confidential process, and allows the business to stay in control of its sales ledger.

How invoice discounting works

Once you speak to one of our friendly initial advisors, we will assess your circumstances and advise whether invoice discounting would be best for your business.

  • The invoice is raised. Send the customer their invoice and forward the details to the funder.
  • Funds are distributed. Once the funder receives your invoice details, they will distribute a portion of the amount. This often happens within 24 hours of receiving the invoice.
  • Your customer pays. The customer pays their invoice into a trust account in your business’ name.
  • Remaining fees distributed. The funder sends you the remaining balance, minus their fees.

Advantages of invoice discounting

To make invoice discounting successful, we work hard to find a lender who can offer your business the following advantages.

  • Fast access to cash, which can help negate the effect of slow-paying customers.
  • Having the funds allows you to keep on top of your outgoings, enabling the business to grow and expand.
  • Optional protection if a customer defaults on a payment, so the lender absorbs the costs and not the business.
  • The process is confidential, and your business maintains control over its sales ledger throughout the arrangement.
invoice discounting

Is invoice discounting suitable for your business?

Invoice discounting is a specialised finance option and will suit some businesses better than others. The arrangement is more suited for your business if:

  • Your business is well established with consistent turnover.
  • You have reliable customers who pay on time.
  • Your business’ credit management procedures are well-established and effective.
  • You don’t have a lot of bad debts.

Although the process is like invoice factoring, there are important differences. Invoice factoring is best-suited to small and medium-sized businesses who can do without the hassle of credit control. Invoice discounting is better suited to larger companies with pre-existing credit management procedures.

In summary

If you’re a well-established business with existing credit management procedures, and a reliable client-base, invoice discounting could help you. By advancing a percentage of your unpaid invoices, it allows your business to reach its full potential without having to worry about cash flow issues or chasing clients for payment.

How we can help

If your business is well-established and you’re worried about late invoices impacting your cash flow, but still want to control your sales ledger, invoice discounting could help. Speak to our initial advisors for free, impartial advice with no obligation. We have a strong foothold in the industry to negotiate a deal with the funder best suited to your business. So, if you want to set your business on the right path, and invoice discounting is something you’d be interested in, contact us today.

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Authored by Richard Froggatt

Richard Froggatt

Senior Consultant

Beverley Horton Christopher Callaghan Stephen Hall

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