Invoice Discounting

Did you know that most businesses cease trading because of cash flow problems many of them are perfectly profitable. If you use debtor finance you can receive payment for items sold on credit immediately, helping you to manage your cash flow more effectively. Surprisingly, only 20% of companies that qualify for debtor finance use it.

What is invoice discounting?

If your company gives goods or services on credit to other businesses, debtor finance is simply a way of allowing you to receive a large part of the amount owing straight away. Using an invoice discounting facility allows you to release the value tied up in trade debts and credit invoices by converting them into cash.

How it works

All trade debts are assigned as collateral to an invoice discounting company. They will pay up from 75% to 90% of the total invoice values straight away and your business will be eligible for the rest of the amount, minus service charges, when your customer has made the payment. The exact percentage of the invoice you receive up front will depend, to a certain extent, on the "quality" of the debt, that is, whether the customer habitually pays on time or late and the strength of your business.

With this kind of invoice finance a lender will typically perform regular audits of your businesses sales ledger and credit control procedures.

Why it works

Here are seven ways invoice discounting can help your business.

1. It frees up your biggest asset, for most companies this is their trade debts. Invoice discounting lets you free up those assets and manage your cash flow more easily.
2. It gives you flexibility. With the cash from your trade debts up front you have the freedom to make payments on regular bills such as tax, salaries or rent and confidence if unexpected bills occur.
3. You keep control of your sales ledger management & collections.
4. By improving your cash flow you can pay your suppliers earlier, therefore you can negotiate discounts and improved delivery times.
5. An invoice discounting facility will grow with your business therefore there's no need to increase or re-negotiate your overdraft or other borrowings.
   • Note: Some lenders may apply a facility credit limit.
6. If you take the credit protection option, it manages business risk and reduces your stress levels. Without cash flow worries, you can concentrate on running your company.
7. Nobody has to know. Invoice discounting is an entirely confidential service.

Improve cash flow with invoice discounting

Receiving an advance payment almost immediately on issued invoices and not when the customer actually pays means that balancing cash flow becomes a much reduced problem. If you take the option of bad debt insurance then potential payment problems just melt away. It should be noted that with invoice discounting, not all of your customers may be insurable.

Eland Business Services can help you decide which cash flow finance solution is available and the right choice for your business. Once we have completed our initial fact finding discussion with you we will indicate what the cost of the service may be for you before proceeding to a full and detailed quote with the lender we think is best for you!

Even if you are not sure whether or not invoice discounting is for you and are would like to talk it though with somebody "in the know" we would be happy to offer you free confidential, no obligation advice, just give us a call.