What is Invoice Discounting?
Invoice discounting is often preferred by more established businesses with robust credit controls in place. Invoice discounting involves a business using its unpaid invoices as collateral to secure a line of credit from a lender. The business retains control over its sales ledger and is responsible for collecting payments from their customers. The lender advances a percentage of the invoice value, typically 85%-90%, with the remainder, minus a fee, paid when the customer settles the invoice. This method is usually confidential, meaning your customers will not be made aware of the arrangement.
Invoice discounting is often preferred by businesses that wish to maintain direct relationships with their customers and handle their own collections.
As with Invoice Factoring, the funder will take out a legal charge known as a debenture against your invoices, allowing them to collect their money in the unfortunate event your business ceases trading.
You will agree a monthly service fee, which is the minimum fee the funder requires to make the facility financially viable for them. There is also a monthly discounting fee, which is the interest charged for the funds in use.
We recommend having a conversation with us as certain funders on our lending panel will allow you to trial an invoice discounting facility for up to six months. You can leave at any time with no exit fee and at the end of the trial you would switch to a rolling contract.