A Guide To Invoice Discounting Finance

Invoice discounting is a finance method for businesses with larger turnovers where your company gets an advance against invoices raised.

Typically the business gets 80% of the value of the invoice then the balance less fees when the customer pays. It's similar in nature to factoring except your company still collects the debt and maintains the customer relationship.

Fees involved range from interest on the money advanced to your business to general charges to the invoice discounting company that lends you the money.

As your invoices are probably the largest asset (as a debtor) that your company has this is a great way to get cash for your sales up front.

Invoice Discounting Factors

Generally this method of financing is only available to existing businesses with a turnover in excess of £500,000 although these figures will vary. Brokers are available to find the best solution for your company.

Check any contract you will sign and invoice discounters will want to know about the track record of your company and ensure your credit control procedures are in excellent order - so at least your debts are generally recovered quickly from your customers.

Your customers are unlikely to know their invoice has been loaned against so you keep the relationship inhouse (which is different from general factoring).

Likely Fees

You'll most likely have to pay two types of fees. You'll pay interest on the amount of money loaned until it is paid. This will be an amount over the base rate of interest and varies between 1% to 3% depending on the company lending you the cash. Most will also charge a management fee of around 1%. But you do get a release of cash upfront so this may be a solution to manage your cash flow.

If you are thinking of using invoice discounting get quotes from several companies including the banks. Professional brokers are also available to choose the right solution and offer alternatives but do check any contracts for fees, penalties and notice periods.

The material contained in this publication is intended for use as a guide and for general information only. It is not intended to be a substitute for independent professional advice.

Seek professional advice before proceeding with your debt invoice discounting requirements.

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