Invoice Discounting UK
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Author: Gary Hemming CeMAP CeFA CeRGI CSP
20+ years experience in invoice finance
Invoice discounting is a form of finance for businesses that allows you to release cash from your unpaid invoices.
As a form of invoice finance, it allows you to finance your sales ledger on an ongoing basis and release funds against unpaid invoices. It’s a way to quickly release cash tied up in outstanding invoices through a confidential facility that releases funds from your unpaid invoices.
In this guide, we break down what it is, how invoice discounting works, the benefits, how financing invoices can support business growth and how to make sure your application is approved.
What is invoice discounting?
Invoice discounting is a type of business finance that allows you to release funds against your sales ledger. It operates on an ongoing basis to support your cash flow, with more money released each time a new invoice is raised.
Responsibility for credit control processes remains with your company and the discounting facility remains confidential. This means that your customer will be unaware that you’re using an invoice discounting facility.
How does invoice discounting work?
Invoice discounting works by releasing funds from your unpaid invoices in return for a small fee. It’s a form of revolving credit that works like a small bank loan to support your business cash flow each time you issue a new invoice to one of your clients.
As with all other types of invoice finance products, such as invoice factoring or debt factoring, you sell invoices to your provider in exchange for a cash advance of 90%-95% of the invoice value.
Key Features of Invoice Discounting
Max Funding
Up to 95%
Invoices Paid
From 24 hours
Products Available
Invoice Factoring, Invoice Discounting & Selective
Application Timescale
From 24 hours
Online Comparison
Apply in 4 minutes
What our invoice finance expert says…
“Invoice finance is a key tool for any business owner who operates on delayed payment terms. For these businesses, cash flow management is a key issue and the more successful you are, the tighter cash flow becomes.
As an industry, we haven’t always made it easy to access invoice finance providers without being bombarded with phone calls, and this is something that we wanted to change.”
Author: Gary Hemming CeMAP CeFA CeFA CSP
20+ years experience in invoice finance
The difference between invoice discounting and invoice factoring in banking
An invoice discounting agreement works similarly to factoring, with one key difference around debtor management.
With invoice factoring, your customers will know you’re financing your invoices because the lender’s team will typically manage your sales ledger and credit control processes. As such, they will chase any bad debt to ensure repayment.
The decision is out of your hands and if their experts choose to take action, it could risk a poor customer experience and damage the relationship with your client. With invoice discounting, you retain control over all communications and can carefully manage customer service and the relationship with your customer.
How To Apply For Invoice Finance
Fill out your details using our simple online invoice finance tool.
Lenders bid on your business by uploading terms to the platform based on your business circumstances.
Once you’ve received an invoice finance offer that you like, begin discussions with that lender in one click.
Your application can be moved forward and once approved, formally signed and completed.
The application process is complete and your funds are sent to your bank account.
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What are the advantages of discounting invoices?
Here are some of the key advantages:
Improved Cash Flow
By releasing up to 90%-95% of the invoice value immediately, discounting significantly improves your financial position. This can be a gamechanger for cashflow.
Confidentiality
Sometimes called confidential invoice discounting, this method allows businesses to maintain their own credit control processes. This means your customers have no knowledge of the financing arrangement, helping you to maintain strong customer relationships.
Flexibility
Unlike traditional business loans, invoice discounting is tied to your sales ledger, meaning your facility grows with your business.
Control
You maintain control over your sales ledger and credit control processes.
What are the disadvantages of discounting invoices?
While it offers numerous benefits, it’s important to be aware of the potential disadvantages:
Credit Control
It requires businesses to manage their own invoice book and credit control processes. This can be a disadvantage for businesses without a sufficient invoice management team.
Eligibility
This form of invoice finance is typically suited to businesses with a high turnover and strong credit control processes. Smaller businesses or those with less robust financial management may find it harder to discount their invoices.
Confidential invoice discounting can release money from unpaid invoices
Release money from your unpaid invoices with ABC Finance. Our tool can help small-to-medium sized business owners compare discounting offers from across the market.
Don’t settle for the first offer – compare invoice discounting in minutes to get the best deal for your circumstances.
Frequently Asked Questions
How quickly can I receive funds with discounting?
We can arrange invoice discounting quickly, in some cases within 2 weeks. If faster funding is needed, we can offer interim funding in 24 hours.
Our discounting brokers are experienced financial professionals who can arrange the finance you need quickly and with minimal fuss.
Is invoice discounting suitable for my business?
Yes, invoice finance may well be suitable for your company if you’re looking to improve cash flow and manage your working capital efficiently.
Discounting allows businesses to access immediate funding by selling their invoices to a finance provider, much like invoice factoring. This helps maintain a healthy balance of cash in your business bank account.
This benefits the company due to improved cashflow, better control over your credit and collections process and improved financial control. It’s a cost-effective way to finance your receivables, as the fees associated with invoice discounting are often lower than other forms of financing.
The costs are also lower than other forms of invoice finance, such as invoice factoring, due to the fact you manage your own invoice book.
If your business could benefit from securing advance payment on your invoices to fund your business operations without waiting for business customers to pay, consider invoice discounting.
This can be particularly beneficial if you have a significant amount of goods or services sold on invoice payment terms of 28 days or longer.
However, it’s important to assess the costs, including any fees and the percentage of the invoice value that will be advanced and how this will impact your business.
Will my customers know I’m releasing working capital from my sales ledger?
No, due to the confidentiality associated with this service, your customers will not know that you’re using a finance facility to release money from your unpaid invoices.
As invoice processing is handled between your business and the lender, with payment of due invoices made into a trust account, there is no interaction between your client and lender.
How does invoice finance support the sales ledger and overall financial health of a business?
Financing invoices can help companies manage the financial strain in a range of ways.
For example, by removing the need to wait for credit terms to pass in order to receive your invoice payments, you can speed up your turnover cycle without having to hassle your business customers for early payment, which can damage your relationship.
Invoice finance supports the sales ledger and overall financial health of a business by providing immediate access to funds tied up in unpaid invoices. This practice helps companies manage cash flow problems and reduce financial strain without taking out traditional business loans or bank loans.
By leveraging invoices as collateral, businesses can improve liquidity, allowing for timely supplier payments and efficient credit control processes.
Companies can thus better manage their accounts, payroll, and bookkeeping, enhancing their creditworthiness and overall financial stability.
This form of financing also supports recruitment and operational needs, making it a valuable tool for sustained business growth.
How do UK businesses benefit from invoice discounting services?
UK businesses benefit from invoice discounting services by improving their cash flow and working capital. Invoice discounting facilities allow a company to get advance payments on their invoices, providing immediate funding upon invoice verification.
The process improves liquidity, credit control and leaves you and your staff in control of collections. With better control over cash, businesses can maintain a healthy balance and reduce financial stress.
Businesses can use the money to cover operational costs, invest in goods or inventory, and pay suppliers or staff.
The fees associated with invoice discounting are often lower than other financing types, making discounting a cost-effective solution.
