Invoice Finance

Invoice discounting

Invoice discounting is an alternative way of drawing money against your invoices. However, your business retains control over the administration of your sales ledger. It can provide a cost-effective way for profitable businesses to improve their cashflow.

Invoice discounting is only available to businesses that sell products or services on credit to other businesses. It is normally only available to businesses with a proven track record and an annual turnover of at least £500,000.

However, it may not necessarily be the cheapest form of finance and can tie you into a long contract.

How invoice discounting works
The invoice discounter will first check the business, its systems and its customers. They may then agree to advance a certain percentage of the total outstanding sales ledger.

You will pay a monthly fee to the invoice discounter and also pay interest on the net amount advanced. This is in addition to advances received or money repaid.

Each month, more money is advanced by the discounter or repaid by you. This will depend on whether the total amount owing has gone up or down.

For example, if the invoice discounter agrees to advance 80 per cent of the total owing and the total of outstanding invoices is steadily changing, then so will the amount you receive. If the outstanding debt drops month on month, you must repay 80 per cent of the fall in debt. If the debt rises month on month, you will receive 80 per cent of the increase.

Features of invoice discounting
You collect the debts and do the credit control. See our guide on recovering late payments.
Your customers do not usually know about the invoice discounting, although it is sometimes disclosed.
Annual turnover must usually be at least £500,000, although increasingly smaller businesses will be accepted. Generally, discounters will review the credit history and profit track record of your business. They will have strict rules regarding the quality of sales ledger systems and procedures.
The invoice discounter will check regularly to see that your procedures are effective.
You can choose between recourse and non-recourse facilities, determining who is responsible for recouping unpaid invoices. See the page in this guide on recourse factoring and non-recourse factoring.