Advantages and Disadvantages of Invoice Discounting

Because invoices can have payment terms of anything from 30 to 90 days, businesses can struggle to manage their cashflow, which can lead to restricted growth of the business through missed investment opportunities.

Invoice Discounting can provide an answer to free up cashflow, allowing you to grow your business at the time you need working capital the most.

In its simplest form, Invoice Discounting uses your unpaid invoices as collateral. You invoice your customer, and your funding provider advances you up to 100% of the value of the invoice. The remaining balance is payable to you when your customer pays, minus any agreed fees.

Managing cashflow is one of the biggest issues mentioned by business customers on a regular basis. Even when sales revenue is high, businesses can struggle to access the capital they need when they need it because they’re waiting for invoices to be paid and they may decide that a bank loan or extending an overdraft is not right for the business.

The below may help you to decide whether Invoice Discounting could be right for you.

The Advantages of Invoice Discounting:

• Can provide you with capital fast – up to 100 percent of the invoice within 24 hours
• It is a form of finance that grows as your business grows
• Reduces the need for overdrafts and bank loans
• The invoice discounting provider does not interact with your customer; you maintain the relationship.

Considerations:

• Invoice discounting is only available for B2B businesses
• If you’re looking for a specific amount of cash, you might not get that from your invoices

It’s important that if you are looking for a specific amount of money, you take time to consider the cost and breadth of invoice discounting against other lending products. As you issue more invoices, your access to money will increase too.

Check the financial requirements too. Invoice Finance providers may have different parameters for more established businesses and also some have more experience in specific sectors such as Construction, Manufacturing, Transport and Recruitment.

In summary, Invoice Discounting is a funding option for more established businesses dealing in B2B, that have their own Credit Control team, looking to better manage working capital.

In general, as soon as you issue an invoice and send a summary of your sales to the Invoice Discounter, you will receive the funds within 24 hours; so much faster than your customers will pay their invoices.

Invoice Discounting is ideal for organisations looking to better manage day to day cashflow. But remember you are in control of ensuring your invoices are paid.

If you’re looking for a specific amount of money to cover an asset purchase or have another financial obligation to meet, it may be better to look at other funding options.