Invoice discounting is another way of drawing money against your invoices. However, your business holds control over the administration of your sales ledger. It provides a cost-effective way for profitable businesses to improve their cashflow.
Invoice discounting is only available to businesses that sell products or services on credit to other businesses. It is normally only available to businesses with a proven track record and an annual turnover of at least £500,000.
It may not necessarily be the cheapest form of finance and can tie you into a long contract.
How invoice discounting works
The invoice discounter will first check the business, its systems and its customers. It may then agree to advance a certain percentage of the total outstanding sales ledger.
You will pay a monthly fee to the invoice discounter and also pay interest on the net amount advanced. This is in addition to advances received or money repaid.
Each month, more money is advanced by the discounter or repaid by you. This will depend on whether the total amount owing has gone up or down.
For example, if the invoice discounter agrees to advance 80 per cent of the total owing and the total of outstanding invoices is steadily changing, then so will the amount you receive. If the outstanding debt drops month on month, you must repay 80 per cent of the fall in debt. If the debt rises month on month, you will receive 80 per cent of the increase.
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Similar to factoring, invoice discounting provides funds to your business by releasing money against unpaid sales invoices. Up to 90% of the invoice value is advanced within 24 hours of an invoice being raised.
Site Updates: Thursday 7th Aug 2008
Featured in The-Mortgage-Hub ã 2006
Site Last Updated: Thursday 7th Aug 2008
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