Invoice Discounting

Can Worldwide offer advice about invoice discounting?

Our independent commercial finance team will be pleased to provide you with advice and information about invoice discounting. Contact us today using our enquiry form.

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Can you tell me more about invoice discounting?

Invoice discounting is a form of short term borrowing to improve working capital and cash flow in a business. It allows a business to borrow a percentage of the value of its sales ledger from a finance company.

There are two types of invoice discounting: ordinary, where you disclose your use of the service to your customers; and confidential, where your customers are not aware of the service.

Is invoice discounting available to my business?

If your business sells products or services on credit to other businesses and you have an annual turnover of at least £500,000 then yes, invoice discounting is likely to be available to your business. Some businesses with smaller turnovers are now also being accepted for this service.

How could invoice discounting help my business?

If you need to improve cash flow for your business it can help you by turning debtors into cash.

The invoice discounter will review your sales ledger and the track record of your business and will then advance you a percentage of the total owed to you on your outstanding invoices.

The invoice discounter will advance you a percentage of the value of your outstanding invoices. This is usually around 80%. As your sales invoices change, i.e. as some are paid and more are created, the amount that is available for you to borrow will change.

If you need to generate the maximum working capital from your sales ledger balance, invoice discounting may be the solution.

How does invoice discounting differ from factoring?

Invoice discounting is generally more flexible than factoring because the arrangement is similar in style to a bank overdraft – you are only paying interest on the funds you have borrowed. Costs are also generally lower. There is some more explanation about costs below.

Will my business have to provide security?

Yes, the invoice discounter will usually take your book debts as security.

What costs are involved with invoice discounting?

Costs will be in the form of interest rates and fees paid to the invoice discounting company.

Fees include administration fees and credit management fees. A credit management fee is the fee that you have to pay for the invoice discounting company carrying out the management of your credit. Administration and credit management charges are ongoing charge which will usually be paid on a monthly basis.

You pay interest (which is calculated daily) on the amount advanced to you by the invoice discounting company, with rates being generally equivalent to those of a bank overdraft and sometimes even more competitive.

Your independent commercial finance adviser will shop around to find the best deals and prices for you and will always consider the quality of the invoice discounting service as well as the cost.

Are there any disadvantages to invoice discounting?

There are a few possible disadvantages to invoice discounting. They are:

• It is something a business can become reliant on.

• It might make taking loans out more expensive as your business will not have as many assets to use as collateral.

• There may be some companies who are reluctant to offer credit terms if you are using invoice discounting.

Your independent commercial finance adviser can help you decide if it is the best option for your business.

Where can I go for more information?

If you have any more questions about invoice discounting for your business, contact us at Worldwide to speak to your dedicated and independent commercial finance adviser. We will be happy to help you and initial consultations are free of charge or obligation.

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Call your FT award winning independent financial adviser in confidence now on 0800 0112825 or complete the contact form and your dedicated adviser will contact you.