What is invoice discounting? Complete guide to rates, pros and cons and how to apply
Invoice discounting refers to invoice financing where unpaid invoices can be used as collateral for a loan.
Businesses can leverage their sales ledger’s value by using invoice discounting companies.
An invoice discounting company will send invoices to customers, and a portion of the total amount is available to the lender.
This provides working capital for your business throughout the month while you wait for payment.
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Invoice discounting can retain control over your sales ledger and your invoice processing and payment chasing.
This method differs from invoice factoring in that the customer doesn’t know you have taken out cash flow finance. Invoice discounting is a good option to keep your customers in the dark about the financial arrangement.
You are still in control of your credit control and will continue to chase late payments. Customers won’t be aware that you are involved.
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Get your QuoteSo, what is invoice discounting?
Small- to medium-sized businesses can find it challenging to get customers to pay their invoices. Invoice discounting is a solution that may be a viable option for you.
Businesses can immediately access cash held in unpaid invoices and get into their sales ledger using invoice discounting.
When you invoice a client or customer, you get a percentage from the lender; this provides your business with an increase in cash flow.
How does invoice discounting work and what type of loan it it?
Another way to view invoice discounting is to see it as a series of short-term loans using secured invoices.
The lender knows you owe the money and will lend you the majority of it before the customer pays you.
Although the funds are secured on an invoice, it is still classed as unsecured business loans as they do not have guaranteed security that the customer will pay you.
Lenders may ask for security on the available loan balance just like they would for a secured business loan if that was the chosen option.
Confidential invoice discounting
Confidential invoice discounting is called this because your customers will now know that you are using an invoice discounting provider and unless you tell them it would be hard for them to find out, if not impossible due to GDPR.
Unlike invoicing, this has a downside: you will still need to chase down invoices as the lender will not chase invoices if they are paid late.
Bank invoice discounting vs invoice factoring
Factoring and invoice discounting are similar, but there is one major difference. Factoring allows customers to know that you are in receipt of financing.
The lender typically handles your credit control and sales ledger. They’ll also chase late payments on your behalf.
On the other hand, invoice discounting allows you to maintain control over all communications and customer services yourself or within your business.
Medium-sized businesses can borrow money against unpaid invoices to get invoice discounting facilities. Invoice discounting facilities work best for B2B companies that offer long credit terms to clients.
Boost cash flow quickly with invoice discounting
Invoice discounting has the greatest advantage: it can increase cash flow. Many businesses across the country struggle to balance their cash flow. This is often not due to low revenue but late payments from customers.
All forms of invoice financing are designed to allow you to pay your invoices immediately and you don’t have to wait for 30 days, 60 or 90 days to get paid.
Your finance provider will pay you the majority of the invoice’s value, usually around 85%, once you have delivered and raised the invoice.
The cash can then be used for anything you want, including your monthly expenses or growth. You also receive the invoice value balance, less fees or interest, once the customer has paid the invoice.
It may be also worth looking into a small business loan to compare these types of loans so that you can be sure to know which is the most suitable for you.
Requires no renegotiation
Because it is an ongoing agreement, you don’t have to renegotiate as often as other finance products; invoice discounting is often preferred. The facility is not like a loan and can continue to roll for as long you wish to pay the account fees.
Your agreement will change as your turnover grows. This is based on the terms you had at the beginning.
Many businesses see their invoice finance agreement as integral to their financial plan and choose to grow with it.
Confidentiality
Discounting has the advantage of being completely confidential, especially when compared to other invoice finance products like invoice factoring.
Other products may reveal that you are using a finance company to send invoices to customers. However, everything is discounted between you and your factor. This is a great way to keep customers happy and maintain good relationships.
Invoice discounting is not long-term debt
Invoice discounting can be seen as less risky than other forms of borrowing since you don’t need to borrow large sums of money and have a clear source of revenue in mind. Invoice finance is a type of financing product that allows you to plan for your finances.
The money you borrow goes directly towards a specific invoice.
As with any financial agreement, you should always seek the advice of an independent advisor before deciding if it is right for you.
With selective invoice discounting, get cash for unpaid invoices
A company can finance its operations with selective invoice discounting. This is done by receiving money from unpaid invoices. For a fee, a finance provider will lend money to the company up to a certain percentage of the invoice’s value.
This allows the company to access cash from unpaid sales, which can be used to improve its working capital or invest in opportunities when cash flow is low or slow. The company is responsible for issuing the invoice to the customer and chasing up payment.
Confidential invoice discounting services
Companies with turnovers of at least £250,000 can avail of invoice discounting services from us. Invoice discounting is the perfect solution to issues like seasonal demand and late payments. These can put a strain on your cash flow and hinder your ability to grow your business.
The invoice discounting service will quickly make cash available so you can focus on your business, not just chase invoices. The money can be used faster to purchase assets or hire staff, which will help you to secure new contracts and expand your business.
Invoice finance is a way to free cash from unpaid invoices and help SMEs grow in the UK. We have already helped over 700 SMEs.
How can I transfer my existing invoice discounting service provider to another?
We can help you switch to Loan Corp if your bill discounting provider is unavailable. We work with the best invoice factoring lenders in the UK and internationally to provide cash flow finance.
Within one to five business days, your funds can be available, given that you do not have bad credit. If you have poor credit then you will be best looking at a poor credit small business loan which will be more suitable.
What is confidential invoice discounting?
Confidential invoice discounting (commonly referred to as “Invoice Discounting”) allows you to free up money from unpaid invoices to increase your cash flow and make things easier.
Invoice discounting is a type of factoring that allows you to use your invoices for collateral. This allows you to manage your credit control and keep any involvement private.
Is invoice discounting an option for a company that has experienced rapid growth?
Companies experiencing rapid growth may be able to benefit from invoice discounting services. We can help you get business finance at Loan Corp with flexible options from many lenders.
Start online below to get approved for invoice discounting finance: