Invoice Discounting Explained

Invoice Discounting - The Basics

Unpaid invoices means cash tied up that you can’t use to run your business. You can turn these invoices into cash quickly by using Invoicing Discounting.

Imagine taking all that customer debt over 60 days old and converting into usable cash flow now? What could you do with that extra cash?

Invoice Discounting is a well established and proven method of getting cash now against invoices due for payment later.
Invoice Discounting involves the finance provider advancing you funds against your unpaid invoices, whilst you continue to manage your sales ledger, credit control and payment collection functions unlike Invoice Factoring where these are handled by the finance company. This means that your customers will not be aware that you are financing your sales invoices.

InterFinancial Limited is a UK based independent broker, working with a number of lenders. This provides us with access to a range of independent market information allowing us to find you the best option that’s available now.

How Invoice Discounting Works

When you issue new sales invoices, you inform the finance company of the details and you’ll then be able to draw down on the funds within 24-48 hours.

You will continue to chase in payment for the invoices, which will go directly to an account managed by the finance company. Once payment has been received, the finance company will pass you any balance of money owed less their fees.

Be warned though, if a customer fails to pay or goes bust then the finance provider will normally deduct back any advance they previously made for that customer against any new advances you’re expecting. Ask about insuring your sales ledger so consider some form of Bad Debt insurance.

Credit Limit Checking

As part of the Invoice Discounting process, your customers will be assessed by the finance company for credit limits.

Don’t worry though, you’ll be able to finance most of your customers to some degree, even brand new customers without any trading history.

You make a sale for £100 + VAT = £120.
You report the sale to the finance company and they advance you (say) £80 within a couple of days. (Note that you now owe the Invoice Discounting company £80)
You chase in payment of your customers invoice which will be paid into an account managed by the finance company.
Once your customer pays the invoice, the finance company passes you the remaining £40 less their fees.

Invoice Discounting Pros:

  • Gives you instant access to cash for sales made on customers on credit terms.
  • No security required to secure the funding.
  • Flexible form of lending allowing you to borrow as much or as little as you like up to the limits agreed against your customer ledger.
  • Your customers don’t need to know you use the service.
  • Invoice Discounting is cheaper than Invoice Factoring

Invoice Discounting Cons:

  • There is a cost, so your profit will be reduced.
  • You may not be able to use your customer ledger as security for other sources of finance.
  • You may not be able to borrow the full amount against poor quality customers.
  • To end the Invoice Discounting arrangement, you’ll need to pay the finance company in full with either a new finance arrangement or a business loan so this will need planning.

Helping you find the best deal for your business

Our aim at InterFinancial Limited is simple, to save you time and money by putting you in touch with the right finance provider offering the right solution for you and your business.

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