Friday 4th Sep 2020
Choosing the right funding solution can certainly be a challenge in today’s market, with so many options to choose from. In this article, we’ll take a look at how a confidential invoice discounting facility might be an option for some businesses. It’s not as common as a loan or overdraft, but is nonetheless a popular option for British businesses, particularly those that have cash flow issues as a result of late payment of invoices.
Who is it for?
Invoice discounting is specifically designed for businesses that struggle with late invoices, and the cash flow difficulties that come with them. In some industries it can be really common for customers not to pay their invoices for 30 or even 60 days. This means lots of cash can be tied up, which might be needed for everything from payroll to new stock. Invoice finance can combat this by releasing most of the value of an invoice almost as soon as it gets raised. Discounting is just one type of invoice finance, and we’ll look at why shortly.
What does the facility do?
An invoice discounting facility is actually quite simple once you’ve got it all set up with your chosen provider. You’ll do business as normal, but when you send your customer an invoice, you’ll also send that invoice to your chosen finance provider. If everything is correct, they’ll transfer you most of the value of that invoice straight away. When the customer pays the invoice, you’ll then get the rest of the money. There are of course fees associated with invoice finance - both in terms of a monthly cost that’s based on your turnover, and interest on each invoice. Checking what the fees are, and if there are any setup costs, is always a good idea when trying to compare different products.
Why is it confidential?
Invoice discounting is just one type of invoice finance, and it’s especially designed for companies that want to keep the agreement between them and their finance provider. There can be a number of reasons for this. One of the most common is that businesses want to keep as many of the same processes and relationships as they always have. Versus an alternative such as factoring, discounting allows for a more seamless transition to a new way of processing invoices. However, it’s always a good idea to do the proper research to determine which product is best for your circumstances. Some businesses would find value in factoring, whereby credit control is taken care of by the finance provider.