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Invoice Discounting – Everything you need to know

UK businesses must increasingly think on their feet to maintain stable and healthy cash flow levels whilst simultaneously fund their ongoing growth ventures, equipment needs and supplier/employee payments, which can often prove a challenge due to long customer payment terms. Often businesses find they don’t meet the criteria for business finance products such as bank overdrafts or business loans. That is where invoice discounting comes in…

Expert Tip: In This Guide You Will Find

What is invoice discounting?

There are many invoice discounting definitions you may come across but essentially we describe invoice discounting as a form of invoice finance – which itself is a type of asset-based lending through accounts receivables – which involves outstanding invoices within a business’ sales ledger being exchanged by way of equitable assignment to an invoice financier for a cash advance.

The provided funding advance prevents having to wait for long and potentially restrictive customer payment terms and the business will also be able to receive a high percentage of the full invoice value from the invoice financier. Invoice discounting is distinguishable from its invoice factoring counterpart by two main features - credit control which is managed in house and disclosure as the arrangement may be kept confidential from customers.

It is useful as a cash flow solution and can help businesses to access funds quickly to create aid in all manner of ways, be it reinvestment for growth ventures, equipment upgrades or simply to pay employees or stock.


Expert Tip: The Rise of Invoice Finance as a ‘Go To’ Business Finance Solution

Invoice finance is considered a form of alternative finance; its existence arose over the past few decades due to increased offerings from traditional lending institutions and its more flexible terms creating popularity among businesses trying to survive the financial crisis and those looking to improve their financial position. Many of the large UK banks now have their own ‘commercial finance’ or ‘business finance’ arms offering a vast range of finance products to businesses. Other popular alternative finance products include P2P (peer-to-peer) lending, asset finance (not to be confused with asset-based lending) and merchant cash advances.

Invoice finance is now being offered and supported by many financiers and financial institutions across the UK. Solutions such as business overdrafts and business loans remain popular and useful, although there is strong evidence that alternative finance options are competing with the more traditional funding options, especially in the SME (Small and Medium-sized Enterprise) market.

UK Finance, in the their “Invoice Finance and Asset Based Lending Update - Q3 2018” highlight how the usage of asset-based lending products remains strong among UK businesses. Their statistics show that business support through invoice finance and asset-based lending “stood at £22.6 billion” which is a 2% increase compared to Q3 2017. Additionally, they remark that support for SMEs is “now comparable to total balances drawn on overdrafts”, highlighting just how viable asset-based lending has become.

Invoice finance comes in two main forms of invoice discounting and factoring; both allow businesses to quickly release cash tied up in unpaid invoices – typically a funder can advance you up to 95% of the value of your unpaid invoices – in order to inject cash straight back in to the business.


How invoice discounting works

Similar to invoice factoring, an invoice discounting facility involves a business uploading invoices to the designated financier, who’ll then provide a pre-arranged percentage of the value of the invoices to the business in advance. Once the debtor has made the payment, the financier will forward the remaining invoice value minus prearranged fees.


Expert Tip: Access Your Invoice Discounting Facility in Three Easy Steps

1. Exchange Details 
Contact our expert team of consultants to discuss your business’ financial situation, customer base and funding needs.
2. Find A Funder 
Based on your information, we’ll connect you to the most suitable funders who can offer the right facility for you.
3. Launch Your Facility Choose a funder from those we’ve recommended then start your arrangement to access a vital cash advance.

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Who is invoice discounting for?

Invoice discounting is perfect for businesses looking for a cash flow solution, those with a high value of invoices on long payment terms, businesses looking to maintain their current position or invest in growth ventures.

Invoice discounting is considered most suitable for established businesses based within the UK with a minimum annual turnover of £250,000. The facility benefits businesses who issue credit terms of between 30-90 days and can afford to maintain credit control of their sales ledger. Additionally, if arrangement confidentiality is a priority then you can achieve that with a confidential invoice discounting facility.


Is my business eligible for invoice discounting?

It could be if:

  • Your projected annual turnover is over £250,000
  • You provide goods or services to other UK businesses
  • You issue credit terms of between 30-90 days
  • You can afford to maintain credit control management of your sales ledger


Expert Tip: There are typically two factors used to determine the facility cost

  • Service Fee – The service fee essentially covers the cost of the administration of your account. Costs can vary from between 0.01% to 1% of your annual turnover.
  • Discount Fee – The finance fee is usually a fixed percentage of the funds you draw down. This can vary from 1.5% to 2.5% over the Bank of England base rate.

Instantly calculate the cost of using invoice discounting in less than one minute >>


Benefits and features of invoice discounting

Whether your business is looking to pay for staff wages, suppliers or equipment, cover day-to-day operating costs or increase potential for growth investments, invoice discounting can serve as a vital means of cash flow support.

The three main variations of invoice discounting are Confidential Invoice Discounting (CID), Disclosed Invoice Discounting (DID) and Selective Invoice Discounting.

  • Confidential Invoice Discounting (CID) – The main difference between the two is that with discounting, the business retains control of its sales ledger and the arrangement can be made confidential. The business’ customers are not aware that the facility is in place as the invoice issued will not bear an assignment notice and assume the business is being paid directly.
  • Disclosed Invoice Discounting (DID) – A DID facility has the same process as a CID facility, but the invoices will bear assignment notices which will inform the business’ customers that their invoices have been assigned to an invoice finance funder and collections will be carried out by the business.
  • Selective Invoice Discounting – Not to be confused with spot factoring, this allows for a series/ entire set of invoices from a single debtor to be chosen from which the facility is arranged against.


The Benefits of invoice discounting include:

  • Rapid Cash flow Support – Access up to 95% of invoice value within a matter of days to use for priority projects or growth ventures.
  • Funds Available Grow As Your Business Grows – The only limit on how much you borrow is how many invoices you can issue.
  • Credit Collection and Protection – Instead of delegating credit collection to a third party, invoice discounting allows your business to retain control of customer payments, whilst credit protection can be arranged to protect you from non-paying customers.
  • Confidential Arrangements – You can maintain the relationships you have with your customers without them being worried about the involvement of an invoice finance funder.


The final decision on which type of facility to go for will be down to the business. In any case, a commercial finance broker can provide more information and expertise to identify which facility will be the most suitable and the invoice financier will also have experts on hand to guide clients through the process and their chosen facility.

No-obligation quotes are available through our quick and easy to use online quote form. Click the button to obtain a tailored quote instantly, or call us on 0207 001 9142.

Visit our Case Studies

Visit our case studies feed to find out more on how alternative finance products such as invoice finance have helped UK businesses in all industries and turnover.

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"Very polite and a professional team of financial advisers who seem to know their business, work well within their industry and get a result."-Invoice Finance Introduction

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