If your business needs a cash flow boost then invoice discounting is a solution
that can unlock value from your debtors ledger so your business is no longer reliant
on timely payments from customers.
It's possible to accelerate cash flows by up to 120 days and the use of invoice
discounting as an invoice finance solution enables businesses to retain control
over their sales ledger and maintain strong customer relationships. It is possible
to raise funds against invoices and receive credited funds within 24 hours.
Invoice discounting involves raising funds which are effectively secured against
the value of invoices uploaded to the sales ledger of a business. It is typical
to be able to receive between 80% and 90% of the value of outstanding invoices,
though in some industries it's possible to open a facility that provides 95% of
the gross value of invoices.
Different Invoice Discounting Solutions
There are two main products within the range of invoice discounting for businesses,
Confidential Invoice Discounting and Disclosed Invoice Discounting. The titles
of the different products describe their functions perfectly.
Confidential Invoice Discounting (CID) enables a client to upload invoices
in bulk and is confidential so the relationship with the funder does not have
to be notified to any party. The client is provided an advance of 80-90% of the
value of their invoices and is free to continue to manage their own credit control
function and chase payments from customers as normal.
Disclosed Invoice Discounting (DID) as a facility operates in a similar
way to a confidential solution. Once again, the client receives an advance of 80-90%
of the value of their invoices and remains in control of the collection of payments
from customers but on this occasion the relationship with the lender is disclosed
to the end customer as a disclosure notice is added to all invoices issued advising
the customer of the involvement of the invoice discounting company.
How Invoice Discounting works
The principles of invoice discounting are in essence the same as those of factoring.
As invoices are raised a percentage of the gross invoice values are forwarded
to the business within 24 hours with the remaining balance being sent when the
end customer pays the invoice. This provides an instant boost to working capital
and takes the stress out of credit control for many businesses because there is
a large window in which customers can pay an invoice.
The fundamental difference between Invoice Discounting and Factoring is the management
of the credit control function. In a factoring arrangement the responsibility
for the collection of payments on outstanding invoices falls to the funder, with
invoice discounting the management of the sales ledger and credit control function
remain in house with the client.
Operation of facility
An invoice discounting solution requires good administrative skills because it
is necessary to maintain a relationship with both the regular customers of the
business and the lender. It's also important to develop a cash flow model that
not only predicts the levels of cash within the business but also makes use of
reporting tools from the funder to identify debt that may fall outside the terms
of the agreement. Invoice discounting facilities effectively provide an up to
date sales ledger which has a variety of reporting tools that can help a business.
A strong benefit of an invoice discounting facility is that the funder will perform
credit checks on an end customer and offer an opinion on credit worthiness.
A facility that can grow
One of the main benefits of an invoice discounting solution is that it is a facility
that can grow with a business that is expanding turnover. If the sales ledger
increases in value then the amount available for cash flow will also increase
as it is a direct proportion of turnover. This makes invoice discounting an attractive
and flexible solution to cash flow difficulties. The effective security of the
debtors ledger means that funders are more willing to provide an invoice discounting
facility than an alternative formal credit request, such as a loan or an overdraft.
One of the key benefits of any invoice discounting facility is the ease by which
businesses can generate funds to boost their cash flow. Funds can be placed in
the bank account of a business within 24 hours of an invoice being raised. A facility
can be created without a lengthy due diligence process and because funds can be
used for any purpose a business does not have an obligation to spend generated
funds in a certain way. Other forms of finance may come with restrictions such
as the need to stick to a business plan which states how additional funds will
be spent. Invoice discounting is a simple solution which is easy to implement
because the funds drawn down are effectively secured by the invoices raised by
a business. With competition strong in the market place the fees and charges associated
with invoice discounting are extremely competitive.
To find out if invoice discounting would be right for your business call Intelligent
Factoring Solutions on 01753 888 737.