INVOICE FINANCE - invoice discounting

Invoice discounting

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Use Capitalise to find invoice discounting for your business

  • FCA regulated since 2015

  • £2bn in funding approved

  • Trusted by over 150,000 small businesses

  • Working with 100+ UK business lenders

What is invoice discounting?

Invoice discounting is a type of invoice finance that allows small businesses to access the funds tied up in their outstanding invoices before the customer pays them. Unlike traditional business loans, invoice discounting involves using your unpaid invoices as collateral to secure a line of credit. This means that you can access the funds you need without accumulating additional debt.

How does invoice discounting work?

Invoice discounting uses your invoices as a way to quickly access capital. The process of invoice discounting works like this: 

  1. You raise invoices for the goods or services provided to your customers as usual. 

  2. You select the invoices you want to discount and share them with the invoice discounting provider. They will then verify the authenticity of the invoices and the creditworthiness of your customers.

  3. Upon verification, the invoice discounting provider advances a certain percentage of the invoice value to your business, typically around 70-90%. This provides you with an immediate injection of cash.

  4. Your customers continue to make payments directly to you, as they would normally. 

  5. Once the customer pays the invoice, the invoice discounting lender deducts its fees and the advanced amount. The remaining funds are then remitted back to you.

Advantages and disadvantages of invoice discounting

Advantages of invoice discounting

Disadvantages of invoice discounting

Invoice discounting can speed up your cash flow, providing you with much-needed working capital to cover operational expenses, or invest in business opportunities.

A con of invoice discounting is the cost involved, as businesses sell their invoices at a discount, they receive less than the full value of the invoice upfront. This discount represents the fee charged by the financing company for providing the funds early.

Invoice discounting doesn't require you to use assets or property as security. The amount you can access grows as your sales and invoicing increase.

Not all invoices may be eligible for discounting as the invoice discounting lender assesses the creditworthiness of both the business and its customers before approving the transaction. If a business has a high proportion of risky or low-credit customers, it might find it challenging to qualify for invoice discounting.

Invoice discounting is often confidential, meaning your customers may not be aware that you're using it, allowing you to maintain control over your customer relationships.

Invoice discounting is typically more suitable for business-to-business (B2B) transactions. It might not be a feasible option for businesses that primarily deal with individual consumers.

Invoice discounting doesn't create additional debt on your balance sheet, so it's an appealing option for small businesses looking to manage their financial obligations wisely.

Your business's ability to access finance through invoice discounting is dependent on your customers' payment behaviour. If your customers delay payments or if there are disruptions in the payment cycle, it could affect your access to funds.

Confidential invoice discounting

Many businesses choose to opt for invoice discounting instead of invoice factoring as you are able to retain confidentiality about using invoice finance. 
Invoice factoring involves giving the responsibility of credit control over the invoice factoring provider. However with invoice discounting, you retain the responsibility of collecting the invoice from your customers. This means your customers will not know that you are using invoice finance, helping to reduce any risk to your customer relationships.

Why use invoice discounting?

  • Quick access to capital

    It's essential that businesses can offer flexibility in their invoice repayment terms in order to help stand out amongst competitors. However, this can put unwanted pressure on cashflow, particularly for small businesses who are yet to accumulate adequate cash reserves. With invoice discounting, you'll be able to advance capital from these raised invoices in as little as 24 hours, with many providers now offering same day withdrawals once each account has been approved.

  • Complete confidentiality

    By retaining full responsibility of your sales ledger and credit control facilities, your customers will never deal with your invoice discounting partner. You'll continue to chase unpaid invoices and credit check new clients in exactly the same way as you do now, keeping your entire accounting operation in-house.

  • Industry-Specific Expertise

    Every industry comes with its unique set of challenges, trends, and payment dynamics that can significantly impact a company's cash flow and financial strategies. Invoice discounting providers with specialised knowledge in a particular sector can offer tailored solutions to help your business.

Is invoice discounting right for my business?

Invoice discounting can be ideal for any business dealing with large volumes of invoices, looking to reduce the hassle caused by lengthy repayment terms. This accessible, flexible borrowing option is designed for businesses which already have sufficient credit control practices in place coupled with reliable, creditworthy customers

Almost any business to business invoice can be advanced through invoice discounting. There are no restrictions on what the capital can be used for. You could purchase new stock to fulfil a large order, hire new staff, or bridge a cash flow gap. 

Each provider offers their own limits in terms of how much can be advanced from each invoice, with payments typically made within 24 hours of approval. 

The funds will be sent directly to your business bank account once an invoice has been raised to your customer with the total amount borrowed repaid, plus interest and any accumulated fees, once the balance has been settled. You'll be able to take advantage of these services time and time again, giving you the peace of mind that you can quickly access capital when your business needs it most. 
 

Can I get invoice discounting with bad credit?

Invoice discounting lenders typically assess the creditworthiness of your customers, more so than the creditworthiness of your own business. This is because invoice discounting uses the invoice as security for the loan, so the likelihood of the lender being repaid depends on whether your customers pay your invoices. This means you could get invoice discounting even if your business has bad credit.

Apply for invoice discounting

At Capitalise, we work with invoice discounting specialists who understand the unique financial demands of each sector, and can use their wealth of experience to help your business draw the most value out of their sales ledger. 

frequently asked questions about selective invoice finance