Invoice discounting is a form of invoice finance to release cash If you’re waiting for customers to pay for your services or products.
Invoice discounting is a way you can unlock cash tied up in unpaid invoices by receiving a percentage of the total from the lender.
As you maintain responsibility for your sales ledger with invoice discounting, customers will remain unaware that you’re using the product – which is why it is sometimes called confidential invoice discounting.
Invoice discounting works in a similar fashion to short-term business loans in that, as the lender knows that money is available in the invoices, they will draw down a percentage of the total.
Invoice discounting works by you providing the goods/services to your customer and invoicing them as normal.
After this, you will send the invoice details to the invoice finance provider. A percentage of the invoice is paid directly to you – different invoice finance companies will advance different percentages, depending on their own risk criteria.
With invoice discounting, you will remain responsible for chasing the payment made by the customer. When your customer pays, the remainder of the invoice that you didn’t receive earlier is paid back to you – minus a service fee.
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Invoice discounting is normally confidential which is why it’s sometimes refer to as ‘confidential invoice discounting’. With confidential invoice discounting you will continue to deal with customers yourself as normal - your customers won’t know you’re using a finance provider. The downside to this is that you’ll still have to chase invoices yourself, unlike invoice factoring.
Invoice discounting is like invoice factoring, however there is one fundamental difference. With factoring, your customers might know that you’re in receipt of finance because the lender will typically manage your sales ledger and credit control processes. As such, the bank will chase any late payments on your behalf. On the other hand, invoice discounting allows you to retain autonomy over all communications and customer service.
Some of the advantages of using an invoice discounting facility are:
With so many alternative finance options now available such as an unsecured loan, it can be difficult to know which one is the most appropriate, but invoice discounting could be a good option if:
One of the main considerations when deciding on an invoice finance facility is whether you carry out credit management processes in-house. If not, invoice factoring may be more suitable.
Discounting services are generally more widely available to established businesses rather than start-ups.
MAF Finance Group can compare finance offerings from a wide panel of lenders to find the best option for you.
If you would like to get a quote or need further information, simply fill in the form and we will contact you. If you want to speak to someone directly, you can call us on 0115 958 6872 and a member of our team will be happy to speak to you. Alternatively, email us at email@example.com.
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Invoice factoring is a form of invoice finance to release cash If you’re waiting for customers to pay for your services or products.
Invoice finance provides early access to the funds owed to you in unpaid invoices. If you find your business waiting for customers to pay for your services or products, you could use invoice finance as a way of getting paid sooner.
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