invoice discounting

The cash you can access grows as your sales and invoice values increase. Well if you’re one of the 60% of British businesses that struggle with cash flow problems, the prospect of is probably a very attractive one. You probably keep reading about how cash flow is the lifeblood of any business – and it’s true, it is. Late payments kill 50,000 small businesses and cost the UK economy £2.5bn each year. One of the biggest worries UK businesses have is running out of money. A large contributor to this is waiting for the painstakingly long invoice term of 30, 60 or sometimes 90 days.

This also leaves you in control of chasing invoices – which can be a good thing or a bad thing, depending on the creditworthiness of your customers. These invoices are called accounts receivable, and the company uses them as collateral. After the supplier gets paid, they return the borrowed amount to the lending company. Invoice discounting is a confidential service that allows you to retain the responsibility of your credit control and sales ledger. This type of invoice finance is very similar to factoring, the main difference being that your customer may not be aware that you have taken on cash flow finance.

Invoice Finance for the Manufacturing Industry

When it comes to the costs of invoice discounting, it’s important to remember that it’s not a one-size-fits-all scenario for working capital. The cost can vary depending on a number of factors including the size of your sales ledger, the creditworthiness of your customers, and the terms of the agreement with your provider. Finally, businesses looking for a flexible form of finance that grows with their sales will find invoice discounting a compelling option. Whether you’re a small business looking for financial support to fuel growth, or a larger company seeking to improve cash flow and liquidity, discounting could be the right choice for you.

It’s often 100% confidential and it enables B2B companies to invest in assets, employees and stock without worrying about stretching their cash reserves or exposing themselves to financial distress. The finance company earns money both from the interest rate it charges on the loan (which is well above the prime rate), and from a monthly fee to maintain the arrangement. The amount of interest that it charges the borrower is based on the amount of funds loaned, not the amount of funds available to be loaned.

Our invoice discounting service comes highly recommended by our customers

Instead of waiting for your customers to pay your invoices, you take out a short-term loan from an company. These companies will lend you up to 95% of the value of the invoices, paying you the money in a matter of days rather than weeks. Invoice discounting is similar to factoring, however there is one fundamental difference. With factoring, your customers might know that you’re in receipt of finance because the lender will typically manage your sales ledger and credit control processes. On the other hand, invoice discounting allows you to retain autonomy over all communications and customer service. XYZ’s customers pays towards the invoices within 60 days, in this case Rs.50,000.

  • Our invoice guide helps you to understand what an invoice is, the different components of an invoice, and how to write one for clients.
  • You can efile income tax return on your income from salary, house property, capital gains, business & profession and income from other sources.
  • That said, if you don’t have the requirements for the service, negotiation is possible – you can then build confidence through repeat business.
  • It allows businesses to receive cash in advance based on the value of their unpaid invoices.
  • This increases the administration costs, which are reflected in the fees.

A couple of their customers have negotiated longer payment terms of 90 days. The company decides that they would like to receive finance against these invoices, so that they can re-invest the money into employing more sales people and stock in order to bring on new accounts. The funder agrees that they will advance 85% of the value of these invoices to the company. When payment is received, the funder will be paid their fees and the customer receives the remaining funds. On the other hand, invoice discounting allows you to maintain control over your credit control processes. It’s a confidential arrangement, meaning your customers are unaware of the financing in place.

How does Invoice Discounting affect my credit score?

The Internal Revenue Service regards invoice discounting as a taxable service. Invoice discounting will likely get taxed if you work with an offshore company. The IRS will look into your discounting agreement and reporting in detail.

invoice discounting

Invoice finance is undoubtedly a good idea if you have unpaid invoices and require working capital. It is much simpler than a standard business loan, in terms of process and security offered. A business loan may require assets and other elements as security, but an invoice discounting facility will concentrate on the value of the invoice and sometimes the insurance backing of that facility. Invoices can also be discounted on a confidential basis, depending on what is agreed with funder.

Will my customers know I’m using Invoice Discounting?

With invoice factoring, your company sells the invoice to the finance solution meaning the finance provider has complete control of the invoice and the client. Invoice discounting allows a company to receive funds soon after sending out an invoice and can be done on a batch or single invoice basis. This allows capital to be used in the business for general cash flow or expansion purposes. It also removes pressure from the company in looking for alternative types of funding and having additional assets to offer as security for these facilities.

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