Friday 14th Feb 2020
When it comes to invoice finance, there are actually quite a few different products to choose from, each one tailored to the needs of businesses in different situations. One less well known product is disclosed invoice discounting. If this is something you’ve come across, but you’re not sure exactly what it entails, then you’ll find the answers here.
What is invoice discounting?
Invoice discounting is all about borrowing money against the value of invoices. It’s a finance product that seeks to help companies that are struggling with their cash flow because customers are paying their invoices late, or indeed not at all. At any given time in the UK, there are millions of pounds owed to small and large businesses, and this cash can prevent the invoicer from operating normally. A lack of cash from invoices can in a best case scenario reduce a company’s ability to expand, and in a worst case scenario seriously inhibit their ability to meet regular monthly expenses such as payroll. As a result, many businesses turn to invoice finance and the benefits it can bring.
So how does it work?
An invoice finance facility is a constantly ongoing agreement, which doesn’t require negotiation and acceptance for every invoice that you’d like to borrow money against. Instead, you set up a facility, and then every time you raise an invoice, you send a copy to your finance provider, and they’ll pay you most of the value of it within around a day. This means you’ve got the cash you need right away. There’s a fee charged for the service, and interest for the duration between raising and invoice and the customer paying it.
How does disclosed invoice discounting differ?
Disclosed invoice discounting is a little different from normal invoice discounting, because it’s not confidential. Normally, with invoice discounting, your customers will not be made aware that you’re using an invoice finance product. However, with disclosed invoice discounting, the agreement is disclosed on each invoice. Sometimes this is out of choice, but most often this is a requirement of the finance company. It’s often reserved for when the finance company is more confident that debts will be paid as they should if it’s made clear that they are involved. One step further than this would be invoice factoring, which is a product whereby the finance provider will in fact take an active role in collecting invoices.