How do invoice discounting facilities work?

Invoice discounting facilities allow medium-sized businesses to borrow money against the value of their unpaid invoices. Generally speaking, invoice discounting facilities are best suited to B2B businesses that offer long credit terms to their clients. They’re valued for their ability to accelerate cash flow, and they can be invaluable to businesses that want to:

• Expand their operations

• Invest in stock, machinery or equipment

• Employ new members of staff

• Fix long-standing issues with cash flow

How do invoice discounting facilities actually work?

To explain the process underpinning this increasingly popular form of invoice financing, we’ll pretend that you run a medium-sized manufacturing business that offers 90 day credit terms. Using an invoice discounting facility, you would follow a simple 5 stage process:

• Supply your clients with goods, and then invoice them as per your normal practices

• Forward a copy of your invoices to a finance provider

• After 24-48 hours, your provider will release funds to match a pre-arranged percentage of the invoice’s value (normally between 70-90%)

• When your debtor settles the invoice, your provider releases the rest of the invoice’s value. Less a small service fee.

What are the advantages of using an invoice discounting facility?

Invoice discounting facilities allow you to boost cash flow and fund growth initiatives without waiting for your clients to pay their invoices. Compared to other invoice financing arrangements, invoice discounting is generally easier to set up and manage because:

• all of your invoices are forwarded to a provider

• the broad spread of debtors means there’s no need to individually vet individual clients.

Invoice discounting facilities are completely confidential. Some invoice financing arrangements (including invoice factoring facilities) force you to allow a provider to collect debts on your behalf, but with invoice discounting facilities, you retain full control over the credit collection process.

As such, you’ll be able to manage every aspect of client communications, and provide consistent customer service that’s in-line with your company’s standards. Retaining control of the debt collection process also means that you can continue to conduct business without worrying about what your buyers think of your financial arrangements, and we know that matters to a lot of UK businesses.

Is invoice discounting right for my business?

Generally speaking, invoice discounting facilities are best suited to companies that:

• Sell to other businesses on credit terms

• Turn over more than £250,000 a year

If you’re interested in invoice discounting and you’d like to learn more, head over to our dedicated page here. Alternatively, read case studies about other businesses and their use of invoice finance products here.