13 Invoice discounting


Businesses’ should ensure that their debt collection procedures are robust, so that they are able to manage their cash resources effectively.


Jon Burt,


Business Services Manager, Melksham


Invoice discounting is an alternative method of finance. It allows a business to draw money against its sales ledger shortly after the invoices have been issued to customers, often within 24 hours. The drawdown is typically 80% of the invoice value. The remaining 20% is available once the invoice has been settled by the customer. This arrangement aids cash flow as well as obtaining valuable support and credit insurance services from the invoice discounter.


Invoice discounting and debt factoring are collectively known as invoice finance. However they are separate products. With invoice discounting your business retains control of its sales ledger. You are not required to inform your customers that you are using invoice discounting as you still collect the debts and deal with credit control. This is different to a debt factoring arrangement where you sell your sales invoices to a third party, who then takes on the debt collection and sales ledger management for you.


There are a number of invoice discount providers including major banks, financial institutions and


independent providers. These organisations will all have their own criteria for assessing whether invoice discounting is appropriate for your business. Generally your business needs to be selling products or services on credit terms to other businesses. It isn’t available to retailers or cash traders. Your business needs to have a proven track record and a turnover often in excess of £250,000. The invoice discounter will want to review the businesses’ finances and study your business plan.


As with all types of financing, there is a cost attached. Fees for invoice discounting are lower than for factoring because you will manage and collect the invoices yourself. Invoice discounting fees typically range from 0.2% – 0.5% of turnover. Alternatively you may be charged an agreed fixed fee and interest on the net sum advanced, calculated on a daily basis.


It is advisable to look at a number of different invoice discounters before you enter into an agreement. Compare the charging structure, the draw down facility and the cancellation notice period. Notice periods can vary from between 28 days to a year.


Invoice discounting is one method of financing available in the market. As with all business decisions it is essential that you assess whether it is an appropriate solution to help you take your business forward.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16