Invoice Discounting: Advantages and Disadvantages - Image

Invoice Discounting: Advantages and Disadvantages

Invoice Discounting can bring some exclusive advantages to help grow your business by releasing cash payments you may have previously been unable utilise. However, there are also a few disadvantages over choosing invoice discounting compared to a factoring facility or a traditional funding line such as a bank overdraft or loan. The advantages and disadvantages of invoice discounting are discussed below.

The Advantages of Invoice Discounting

As the UK’s largest invoice finance introducer, we pride ourselves in the help we are able to provide to businesses thanks to products such as invoice discounting and invoice factoring. Here are some of the most important points as to how your business may benefit from an invoice discounting facility.

  • Invoice discounting, as with other invoice finance products, does not rely on you owning any assets to act as security. This is often a huge advantage over bank loans as not every business owner owns a property or high value assets to be used as security.
  • As opposed to invoice factoring, invoice discounting can remain confidential from your customers. This leaves you in control of collecting any payments and so you maintain the same manner of credit collection that your staff currently already performs.
  • It can provide significantly more cash than a traditional bank loan or overdraft.
  • The cash amount available is reactive to your sales ledger, meaning there is no need to worry about outgrowing the available cash from your loan or overdraft.
  • There are various useful “bolt-ons” available, if fit for purpose for your business. These include bad debt protection, back-end payroll support and other industry specific advice and services, which free up your time and protect your business from risk.

If the advantages above grabbed your attention, it’s time to make sure you aware of the pitfalls with invoice discounting. Read on for more information.

The Disadvantages of Invoice Discounting

The requirements for invoice discounting are different from other forms of lending. If not managed properly, this, and a few other issues, can lead to unwanted circumstances. Here are a few of the potential pitfalls associated with invoice discounting:

  • Invoice discounting lenders, as with the majority of invoice finance lenders, only advance commercial invoices. This means that they only work with the payments you have owed from other businesses, as opposed to the general public.
  • You will need a strong, established credit collection process in-house to be accepted by an invoice discounting lender, otherwise, you may require invoice factoring instead.
  • On face value, this form of lending can seem to cost more than the charges associated with an overdraft or loan and so may impact on your profit margins more heavily.
  • Some lenders may charge hidden costs throughout the facility. If one such lender is used, this can put business owners off from using the facility.
  • Some businesses can become overly dependent on invoice discounting as a funding facility and unable to leave without negatively impacting on their operations and sales levels.

Invoice discounting is one of our specialities when it comes to funding your business. If you want to get in touch with an expert, fill in this quote form and a consultant will be in touch with you shortly.

Apply now and one of our consultants will help to find you the best invoice finance facility for your business, free of charge.

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