Invoice Discounting
What is Invoice Discounting?
Invoice discounting involves turning newly raised invoices into cash: usually within 24 hours. The amount of cash provided by the invoice discounting company forms 85% of your invoice value and is paid back to the lender once you have collected back the debt from your customer(s). This repayment will also include a small administration charge.
Is Invoice Discounting For Me?
Invoice discounting is only practical for businesses that turnover £250K or more. If your turnover is less than this amount or you do not have sufficient credit management skills, then factoring would be a more feasible solution.
Factoring instantly provides you with 90% of the invoice value and the responsibility of collecting the debts is passed onto the factoring company.
I am Currently With an Invoice Discounting Company
No problem. Businesses change lenders all the time as the competition has forced companies to offer lower fees and free advice and support.
What is Invoice Discounting?
Invoice discounting is the process of turning newly raised invoices into cash: invoice finance. For example, if you are, say, a manufacturer and you raise an invoice for £10,000 against goods that you have supplied to one of your customers on credit terms, you can convert this invoice into £8,500 cash (the maximum advance against any invoice being 85%) within 24 Hours.
What happens next?
You collect the full amount of the invoice from the customer and then pay the cash advance back, with a small service fee for administration.
Does the customer have to know about the invoice discounting company?
No, if your own credit management system and turnover is in excess of £250k you can utilize invoice discounting. However, if you do not have a good credit management capability, and you turnover less than £250k, you can opt for Factoring.
Why use a invoice discounting company?
There are a number of benefits to having 24 hour access to cash flow, as is the way with an overdraft. However, factoring gives you cash flow when you need it, and the amount you need. Overdrafts are not flexible enough to count on, but factoring is a dead cert and is authorised way in advance of supplying your services or goods.
What is the benefit to a new businesses in using an invoice discounting company?
There are a number of real benefits:
- new businesses do not usually have sufficient assets for secured lendin
- as your lending capabilities grow with your business there is no need to pay fees or to re-negotiate with your bank for overdraft arrangements
- no need for personal guarantees – as you do with business lending through banks
- no requirement of 1/2/3 years trading before being considered for finance
- if you export, the invoice discounter is invaluable for advice and expertise
- confidential borrowing: only you and the service provider is aware of invoice finance
Can I transfer to a new invoice discounting company?
Yes, many companies change invoice discounting company. As the competition between invoice discounters bring fees down and non-chargeable support services increase their is a benefit in moving around: much like a credit card. The change over is seamless with no cash flow delays.