Invoice Discounting

Improves your cash flow – invoice discounting allows you to grow your business by simply getting paid quicker. This allows your business to have a steady cashflow, not have to wait for clients to pay on time and trade efficiently.

Confidential – this means that your clients do not have to be aware that you have the financial backing of a lender. Some business owners prefer this.

Potential discount from suppliers – invoice discounting can sometimes pay for itself. This is because a business can now afford to pay suppliers sooner and potentially negotiate a discount from them.

Safe way to borrow – as your business grows, so does your funding. Unlike a traditional loan, you can only borrow against cash that you are already owed by clients. Therefore, there is no risk of falling behind on payments.

Release up to 90% of the invoice value – this is not only for future invoices, but you can also drawdown against your existing sales ledger, as long as the invoices are not older than 90 days.

Speed – you can release cash from an outstanding invoice on the same day. Therefore, you no longer have to wait for clients to pay and you can trade more efficiently.

More admin – you must conduct credit control in house and lenders quite often need management accounts to be produced on a monthly / quarterly basis. This is because there is less transparency associated with this form of invoice finance facility.

Debenture search – if your clients wanted to search your business, they could still see if a lender has registered a debenture charge on companies house and know of the lenders involvement.

Terminology – not all lenders use the same terminology and call it invoice discounting. It is quite often referred to as a CID facility which is just an abbreviation of ‘Confidential Invoice Discounting’.

Confidential invoice discounting can be great for a business that needs a steady cashflow. It allows businesses to have that constant working capital required to trade efficiently. Invoice discounting is generally for bigger businesses who have systems in place to conduct credit control and can produce management accounts on a lenders request.

Invoice discounting is confidential, and you keep credit control in house. Invoice factoring is fully disclosed, and the lender assists with credit control and often speaks to clients.

Invoice discounting is the most confidential version of invoice finance. Debtors are not contacted by the lender and the lender’s notice of assignment does not have to appear at the bottom of your invoices. Please note, that if a client wanted to do a company search on your business on Companies House, they will be able to see all lenders that take a charge on the debenture. This is the same for various forms of business borrowing.

Invoice discounting is not normally available to new start businesses. However, if you have a proven track record and suitable systems in place, we can certainly find you an invoice finance lender that can accommodate an invoice discounting facility.

You send your sales ledger to the invoice finance lender

They release up to 90% of the gross sales ledger balance (inc the VAT)

Your business then conducts the credit control and chases payments

The remaining 10% is payable back to your business once your clients pay (minus the lenders charges)

Accounts and ledgers are reconciled frequently

Speak to Contact Business Finance today and we will put your business in contact with the most suitable lender.

All we need to do is have a 15-minute conversation to find out more about your business and your funding requirements.

It is important to have suitable accounting systems in place for an invoice discounting facility. You need to be able to operate your own ledgers and provide management information such as, a balance sheet, profit & loss account and trial balance. Such information can be provided manually to the lenders. However, there are even lenders that can plug into your accounts package such as, Sage, Xero and QuickBooks to make this reconciliation process automatic and easier if required.

Lenders are more interested in what they are funding against – the invoices. Therefore, if you have a clear paper trail in the run up to raising an invoice, lenders can get comfortable.

Invoice discounting can be more cost effective if you have the people and processes already in place to conduct tasks such as credit control. The service charge is often more competitive because the lender is not having to chase payments with an invoice discounting facility.

If your business suddenly needs assistance with credit control, the majority of lenders can assist. If credit control is constantly needed, you might be best suited to an invoice factoring facility instead, where credit control is included.

Contract periods vary depending on what lender you go with. There are several lenders in the marketplace that offer trial periods. Many lenders offer 12-month contracts and if required can offer longer contracts to give your business security that you have a funding partner long term.

Yes, there are certain facilities available that allows a business to pick and choose which clients to include in a facility. The rates are generally not as competitive for such a facility as there is less turnover going through the facility. However, it is an option worth considering if an invoice discounting facility is only required short term.

Any form of invoice finance allows you to offer extended credit terms to clients. This is often a great weapon to have in your armoury if you are a competing to win a contract. With invoice finance, lenders will quite often lend against invoices for 120 days and sometimes longer depending on what industry you operate in. Please note, you should not just offer extended credit terms to anyone. Part of any invoice finance facility can also include the lender doing in depth credit searches on your clients, so you can see what terms / limits are suitable to offer.

Any business that raises an invoice to another business on credit terms can apply for an invoice finance facility. Generally, we find that invoice discounting facilities are for established businesses that require that extra working capital to assist with cash flow. Releasing cash from your invoices is a great way to inject money into the business which often means you can afford to take on more work. With invoice discounting you no longer have to wait to get paid by your debtors before moving onto the next job.