What is invoice discounting?

Looking at invoice discounting as a product, you will receive advances of funds against outstanding sales invoices.

24 hour settlement

Up to 95% of the value of your invoices can be paid out within 24 hours of raising them.

There is generally no intervention into your credit management systems and the provider’s involvement is not always visible to a client’s customers.

Funds advanced can be increased when a selection of assets is taken into consideration: A provider can fund against invoices, stock, plant and machinery, land and buildings. The exact mix of assets utilised will depend on your needs and the strength of security in the assets themselves.

How do you benefit?

By having funds available when you need them, you can focus on running your business without the constant pressures that inadequate cash flow can bring.

Invoice discounting always provides funding against your debtors and can be extended to include a mixture of stock, plant and machinery, land and buildings.

Facilities are revolving, therefore you are not required to make capital repayments, once again maximising available cash flow. This additional headroom can put you in a position to seize business opportunities, giving you a real edge on your competitors.

How invoice discounting is charged

When should you use invoice discounting?

Many businesses looking for financial support still rely on traditional bank funding.

However, take a moment to consider exactly what your company’s financial needs are and how they can best be serviced.

Start by asking yourself a few simple questions:

  • Do you sell products or services on credit?
  • Do you find that you have to buy more quickly than you get paid?
  • Do you have to hold high levels of stock?
  • Does this tie up your cash?
  • Do you want to develop new products?
  • Do you find funds you need to finance further growth are tied up in unpaid invoices?

If you find yourself answering yes to any of these questions, invoice discounting and asset-based lending can maximise the cash available against many of your business assets and release the funds you need. e.g., to finance further growth.

What does it cost?

Invoice Discounting providers charge in exactly the same way as factors, using two fees: a service fee and a discounting fee.

As with factoring, these combined costs are 90% of the costs involved. Thereafter, a facility is also subject to smaller (and sometimes optional) one-off charges, or “disbursements”.

Invoice finance charges are levied as follows:

Service fee: an agreed percentage of the invoice factored, eg factored invoice is £1,000, service fee is 2%, factors charge = £20.

Discounting fee: interest of money borrowed, eg an invoice for £1,000 is factored generating the client £750 which is available to be drawn down at the client’s request. If this sum was drawn down in full and was outstanding (borrowed) for 45 days before the customer paid, a client would be charged interest on £750 for 45 days (the fee would equate to an estimated £6). Interest is charged normally at 2% to 3% over base.
Please note, base rates can vary from provider to provider and are subject to capping at an agreed minimum level.

Disbursements: these are extra fees such as chaps payments, normally £15 to £30 if funds are requested same day. These charges are often free if funds are drawn via a three-day payment. With refactoring fees, between 0.5% and 1.25% of the invoice value is levied monthly against old invoices which take longer than four months to pay, bounced cheques and credit searches. Disbursements are the industry’s hidden income and something our services will help explain and keep to a minimum.

In summing up, a £1,000 invoice is financed at 75% at 2% service rate and 2.5% over the agreed base rate (discounting rate). If the £750 is drawn for 45 days, the client should expect to be charged:

£20 service fee (1,000 at 2%)
Circa £6 interest for the 45 days.
Total charge = £26.00 per £1,000 + some small optional disbursements.