Tuesday 25th Feb 2020
Invoice discounting is a popular product for UK SMEs that need a little help with their cash flow. But it’s still one that lots of businesses aren’t aware of, because it’s not your typical loan or overdraft. If you’re considering an invoice discounting facility, then take a look at some of the most commonly given benefits for this non-traditional funding option.
Boosts cash flow
The biggest advantage of invoice discounting is that it can significantly boost cash flow. Businesses up and down the country often struggle with their balance of cash, and much of the time this is not down to poor revenue, but late payments by customers. The idea behind all forms of invoice finance is that you no longer need to wait 30 days, 60 days, 90 days or even longer for your outstanding invoices to be paid. Instead, as soon as you’ve delivered and raised an invoice, your finance provider will pay you most of the value of the invoice, which is usually around 85%. This cash is then free for you to use for whatever you need, whether it’s the typical monthly expenses, or to fuel growth. Once the customer pays the invoice, you also get the remainder of the value of the invoice, less fees and interest.
When compared with some other invoice finance products, and invoice factoring in particular, discounting carries the benefit of being entirely confidential. Some other products will reveal that you’re using a finance company for your invoices to customers, but with discounting everything is kept between you and your factor. This is ideal if you’re looking to maintain relationships with customers, and feel that you have everything otherwise under control.
Requires no renegotiation
Invoice discounting is often chosen as an alternative to other finance products because it’s an ongoing agreement that you don’t need to constantly renegotiate. Unlike a loan, the facility keeps on rolling for as long as you want to pay the account fee. And as your turnover increases, your agreement will automatically change based on what you agreed at the beginning, such as with different fees and rates etc. Lots of businesses therefore choose to grow with their invoice finance agreement, and see it as an essential part of their financial plan.
Isn’t a long term debt
Our final point is that invoice discounting is often seen as a less risky form of borrowing, because you’re not borrowing large amounts of money without a clear revenue source in mind. With invoice finance, the money being lent is directly against a specific invoice, which makes it a more manageable type of finance product that can be easily planned for. However, as with any other financial agreement, it’s always worth seeking out the advice of an independent advisor before you decide if it’s right for your business.