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 straight away, helping you to manage your cash flow more effectively. Amazingly, only 20% of companies that qualify for debtor finance use it.

What is debtor finance?

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 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.

Step by step guide to the process of Invoice Discounting

There are five simple stages to the process of invoice discounting, here they are:-

1. You supply your goods or services to a customer and issue an invoice for payment.
2. You tell the invoice discount company.
3. The invoice discount company gives you a portion of the invoice total straight away, based on the rate you have agreed with them.
4. The customer then pays the invoice, either via an account you have with the invoice discounter or via your own account.
5. The invoice discounter releases the balance of the invoice minus the agreed service charges.

Invoice discounting is flexible, the funding it provides will grow alongside your growth in sales. It is also discreet. You don’t have to tell your customers and can continue to manage customer relationships, sales ledger and credit control, yourself, using the facility on a confidential basis.

In short, invoice discounting can bring powerful benefits to your business by freeing up your biggest asset, here’s how.

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 theres no need to increase or re-negotiate your overdraft or other borrowings.
6. If you take the credit protection option, it manages your risk and reduces your stress levels. Without cash flow worries, you can concentrate on running your business.
7. Nobody has to know. It’s an entirely confidential service.

How to set up invoice discounting

To set up invoice discounting for your company it must qualify. Qualification is usually determined by the size of turnover – it should be £100,000 or over. However, if you have applied to other companies for invoice discounting and been refused the chances are we will still be able to help you.

If your business qualifies for invoice discounting, you will then need to provide your discounter with seven pieces of information, these are:-

1. An up to date Aged Debtor Analysis.
2. An up to date Aged Creditor Analysis.
3. The last 3 years’ accounts or management accounts if it is a new company.
4. A sample sales invoice.
5. A sample contract if applicable.
6. A copy of your company’s VAT certificate.
7. A copy of your company’s certificate of incorporation (if applicable).

Here at Eland Business Services, we will make it our business to guide you comprehensively through the whole process, helping you to determine if invoice discounting would be right for you. We can advise you on the terms you should expect to pay for the arena in which your business operates and save you time and money by sourcing a suitable provider 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.