Invoice Discounting

Last Updated: 12/09/2024

Invoice discounting for UK businesses 

Invoice discounting is a type of finance product where businesses sell their unpaid invoices to a third-party company to receive immediate cash, rather than waiting for their customers to pay.

This improves cash flow and allows businesses to fund their operations or invest in growth. The discounter advances a percentage of the invoice value, typically 70-90%, and the business retains responsibility for collecting the payment from their customer.

Once the customer pays, the discounter deducts their fees and remits the remaining balance to the business.

At MAF Finance Group, we have a large panel of lenders and explore the entire market to find the right solution for you. Regardless of your invoice discounting requirement we will deal with the whole process through from start to finish allowing you to continue day-to-day business operations.

What is invoice discounting?

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.

How does invoice discounting work?

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.

What is confidential invoice discounting?

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 vs 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.

Advantages of using invoice discounting 

Some of the advantages of using an invoice discounting facility are:

• Quick cash
• Releases locked cash
• Reduced collection period
• Improves cashflow
• Retain control over your sales ledger
• Confidentiality

Is invoice discounting right for my business?

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:

• Your credit control procedures are robust and known to be effective.
• You have minimal bad debts.
• Your customers have a minimum of 30 days in which to pay the invoices.
• You meet the minimum level of turnover required by the lender.

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.

Who is eligible for invoice discounting?

• All businesses invoicing other businesses.
• From new starts to well established businesses.
• Turnover above £50k per annum
• From small businesses to large major corporates.

How to apply for invoice discounting

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 protected].