Also known as confidential invoice discounting, invoice discounting is a popular method for improving cash flow for businesses who have payments tied up in 30-120 day invoices.
With invoice discounting, the process is confidential which means no disclosure to your customers that you are financing your invoices. You also retain control of your sales ledger and send out your own reminders for payment.
The first step is to raise your invoice as normal with your customer, ensuring information such as the amount due and the date payment is due is all included.
You send the invoice to your provider who approves it and advances you up to as much as 100% of the cash value within 24 hours.
Congrats! You’ve now got freed up money to cover your business costs such as staff wages.
On the invoice due date, the provider receives payment from your customer into a trust account that is in your name, ensuring confidentiality from your customer. Following this, you’ll be forwarded any remaining amount of your invoice minus prearranged fees.
Advantages and disadvantages of confidential invoice discounting
It’s important to get as much knowledge as possible when it comes to making any financial decisions so we’ve outlined the advantages and the disadvantages of invoice discounting so that you can make an informed choice.
Even though your customers don’t pay you directly when their invoice comes due, they are paying into a trust account in your name managed by the facilitator.
As well as the standard support and relationship management, you can also opt for bad debt protection, payroll support, or even more specific guidance.
Discounting differs to a bank loan as there is no requirement for you to own a property or any high value assets for security.
You can maintain your customer relationships and style of communication as you are still directly in touch with your customers for pursuing payment.
With the advanced amount from your financer, you have immediate access to funds you can now use to cover your business costs.
If you are owed payments from someone other than a business – for example, a member of the public for whom you’ve provided a service – then they are not eligible for discounting.
You must have in place your own strong process for credit collection in-house. If not, you may require factoring instead.
Because the process is confidential, you’re still responsible for contacting your customers when payment is due which can use up some of your time.
What are the costs involved in invoice discounting?
Fees and costs involved with invoice discounting vary depending on your agreement with your financer. This process is ideal for companies with a turnover of £250,000 (plus VAT) – with a turnover of less than this, invoice factoring is another option to consider.
The most likely fees to crop up are a service fee, as a percentage of your turnover, and a discount fee, which is the cost of borrowing.
For a rough idea of rates, try our interactive invoice finance calculator; simply input your turnover and outstanding sales and it will show you what you’re likely to get as an advance and what fees you may be charged.
Compare invoice discounting options
We compare invoice discounting providers because we recognise that every business has different needs. Each sector is different, too, so it’s crucial that we find a provider that works within your industry so that they truly understand what you need and how you work.
As previously mentioned, the fees and rates that providers charge do vary so this is another thing to consider and we can help you do this.
Touch is the UK’s largest invoice finance broker and we have a hand-picked panel of over 35 of the top funders in the country. After a conversation with one of our expert consultants, you’ll be matched with up to three providers who most appropriately suit your business needs.
Alternatives to invoice discounting
If the requirements for discounting don’t fit for your business, there are other options available for funding. Invoice factoring is the most popular form of invoice finance with different requirements and many of the same benefits – although it isn’t confidential in the same ways as discounting, it’s a very effective method of improving your business’s cash flow. For more control over the process, you can use a CHOCS facility on your factoring arrangement. This stands for Client Handles Own Collections and means that you deal directly with your clients rather than the funder doing so on your behalf.
Alternatively, you can consider an unsecured business loan if you are a small or new business that has been trading for a minimum of twelve months.
Get in touch
Fill in our form to arrange a call back and discuss invoice financing options for your business.
We have a panel of over 35 hand-picked funders and we are confident we will be able to help you in selecting the right one for your business needs.
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