Invoice Discounting: Get paid when you invoice

It provides a working capital solution that lets your business get advances on the cash you are due from customers, without having to wait for those customers to pay.

So, rather than waiting 30 or 60 days for payment, or even longer with large corporate customers who may take months to pay, you get the funding as soon as the work is done.

It means you have the working capital you need to operate your business and invest in growth.

How it works

Invoice Discounting provides a cash advance using your invoices as the collateral - the security the lending company needs to advance money.

With Invoice Discounting, you raise an invoice as usual, send it to your customer and send a copy to your finance provider to authorise payment. They can release 75-90% of the value of the invoice immediately, depending on your arrangement.

When your customer pays you the outstanding invoice, you pay it into your account with the finance provider. Once the funds have cleared, they will send you the ‘balance owed’, less their fee.

• You provide the goods/services to your customer and invoice them
• You send the invoice details to the invoice finance provider
• The provider pays you an agreed percentage of the invoice value
• When your customer pays, the balance of the invoice is made available to you – less the provider’s fee

If your business already has sound credit management, and the staff and systems to ensure customer collections, Invoice Discounting could be the simple way to speed up your cashflow.

The finance company earns money both from the interest rate it charges on the loan and from a monthly fee to maintain the arrangement.

Reducing risk to your business

Invoice Discounting can reduce financial risk to your business. Because all cash advanced is secured on invoices you have already issued, it avoids the danger that you will fall behind with loan repayments, which is always a possibility with traditional commercial finance.

With some providers, there may also be an option to combine Invoice Discounting with Bad Debt Protection. It can minimise the risk that failing customers could damage your business.

Invoice Discounting vs Invoice Factoring

Invoice Discounting differs from Invoice Factoring because the collection of payment from your customers remains your obligation. With Invoice Factoring, the provider’s own credit control team will contact your customers. In the case of Invoice Discounting, you are still in full control, and your customers will not be aware that you are using the service.

If your business has issues with credit control and collecting payments, then Invoice Factoring may be a better choice in that the Factoring provider, with specially trained staff, will be better equipped and experienced in managing late payments.

What are the advantages?

Invoice Discounting turns debtors into cash faster and generates the maximum working capital from your sales ledger balance. The advantages to your business include:

• Improved cash flow - you no longer have to wait up to 90 days or more to get paid
• Get 90% of invoice value as soon as you bill your customers
• Cleared funds can be in your account the day after you invoice
• You retain control over your credit control – your customers will not know you are using the facility
• The level of funding you can call on will grow in relation to your level of outstanding invoices – making it ideal for funding growth
• Ideal for high-profit businesses that are growing at a rapid rate, and need the cash flow to fund additional growth
• Injects capital into your business, without having to deal with banks or sacrifice equity.

Is it right for your business?

Invoice Discounting has become a major source of Working Capital Finance. There are several reasons for this. One is the restriction of bank financing. As Invoice Discounting is secured by the collateral of the invoice due from your customer, it is a cash advance rather than a loan, and so has little or no impact on your other credit arrangements. Another key reason for its popularity is the fact that is very cost-effective.

Invoice Discounting works best for companies with relatively high profit margins, since they can readily absorb the relatively high interest charges. It can, therefore, be ideal if you have an annual turnover above £500,000 and an established credit control system in place, as it avoids the need to change your established credit control procedures.

Unlike bank overdrafts and traditional forms of lending, Invoice Discounting is a flexible facility that grows with your business. It enables you to quickly inject capital, without having to deal with banks or sacrifice equity. Invoice Discounting is a quick way to free up money.

Whole Turnover or Selective Invoice Discounting?

Invoice Discounting facilities are traditionally based on your whole turnover, meaning that all your invoices will be used to provide the maximum cash advance. However, you may not want to use your entire sales ledger - which may not be the most cost-effective solution, especially if you have some customers who pay quickly.

Selective Invoice Discounting - Single Invoice Finance - allows you to use individual invoices as the basis for a discounting arrangement. This can reduce the cost and increase the flexibility of the arrangement. It can be particularly appropriate for small businesses which have seasonal fluctuations in cash flow and so may have a varying need for finance.

Financial solutions from Rangewell

The rates and terms offered by Invoice Discounting providers vary, and it is important to have expert help to get the most competitive provider for your business type, your sector and your turnover.

At Rangewell, we can use our finance expertise to support your business – and ensure that you have the financial solutions you need. We can help source Invoice Finance providers who can provide solutions tailored to your sector, whether you're looking at Supply Chain Finance to Invoice Discounting and Whole Ledger Finance - reducing your costs and helping you have more funds to operate and grow your business.