Invoice discounting is an invoice finance facility when a company's unpaid invoices are used as collateral for a loan. Invoice discounting companies enable businesses to leverage the value of their sales ledger.
With an invoice discounting company, when sending out invoices to customers a proportion of the total amount becomes available from the lender, which provides your business with a source of working capital throughout the month while you wait for the payment of your invoice to be processed.
The benefit of invoice discounting is you maintain responsibility for your sales ledger as well as your payment chasing and invoice processing. The main difference between this method and invoice factoring is that your customer is not aware that you have taken on cashflow finance. If you prefer to keep the financial arrangement confidential from your customers then invoice discounting may be the right product for you.
You no longer have to wait up to 120 days to receive payment for your goods and services, and you remain in charge of your own credit control processes, meaning that you continue to chase late payments and therefore your customers are not made aware of our involvement.
You remain in charge of your own credit control processes, meaning that you continue to chase late payments and therefore your customers are not made aware of our involvement.
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.
To explain the process, 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 minus a small service fee.
Generally speaking, invoice discounting facilities are best suited to companies that sell to other businesses on credit terms turnover more than £250,000 a year
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.
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.
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.
Hitachi Capital Invoice Finance supply Invoice Discounting facilities to companies working in a wide range of sectors around the UK, with a turnover of £250,000 or more.
Invoice Discounting is a perfect solution for issues such as late payments and seasonal demand which can cause a strain on your company's cash flow and prevent you from reaching your growth potential.
Our Invoice Discounting facility will make the cash available quickly, leaving you to concentrate on running your business and not simply chasing invoices.
You are able to utilise the money quicker to invest in assets and staff to help you secure new contracts or expand in to new areas.
We are already supporting over 700 SMEs in the UK to reach their growth potential by using Invoice Finance to release cash tied up in unpaid invoices.
Great service so far
From start to finish the process for transferring our invoice finance to Hitachi has been been brilliant, a smooth transition, great communication our link Person Jonathan Oakes has helped the process go through seamlessly, A great experience so far and a brilliant start to what we hope will be a long term partnership.
Excellent customer support
Donna was exceptional - patient, knowledgeable and a pleasure to work with
Invoice discounting can be both a short term and long term form of borrowing. The majority of businesses incorporate Invoice Discounting in to their standard business operations, with any associated costs factored into overall profit margins and view the facility as a longer term solution.
Confidential invoice discounting (commonly known as simply “Invoice Discounting”), allows you to release money from your unpaid invoices to improve your cashflow.
The difference between invoice discounting and invoice factoring is that with discounting, you retain control of the collection process and stay in contact with your customers directly, whereas with invoice factoring the business sells its invoices to a third party and then the factoring company chases the unpaid invoices and sends payment reminders directly.
Generally speaking, invoice discounting facilities are used to leverage cash from your entire ledger, which means you’ll forward every invoice to your lender, and then settle your debts as you collect from your clients.
Invoice discounting is a good option is you carry out in-house credit management processes and have good relationships with your customers. It is also a good idea if you want to keep our involvement confidential. Businesses looking for this facility usually need to have a higher turnover of around £500,000 plus.. Otherwise, Invoice Factoring would be more suitable for a business looking to outsource their credit control and not have the confidentiality in place.