Invoice Discounting is very similar to factoring except for one key difference. In factoring you sell your invoices to the 3rd party factoring company and that company is then detailed on your invoices and your customers pay the factoring company direct. In exchange they will advance you approximately 85% of the total value of the invoices and will follow up your customers for payment. With invoice discounting you also sell your invoices to a 3rd party but you still maintain control over your sales ledger and will chase the debt yourself.

Invoice discounting offers a cost effective way to gain access to the money tied up in un-paid invoices and improve cash flow. After assessing your business the invoice discounting company will advance you a percentage, typically up to 85% of the total outstanding sales ledger. For the privilege you will pay a monthly fee as well as interest charges on the money advanced. The interest payment maintains your focus in getting your outstanding invoices paid as quickly as possible so you can reduce the cost of the service.

Invoice discounting is usually only available to larger businesses with an annual turnover of at least £500,000. They must be involved in selling products or services on credit to other businesses and have a proven track record. Your business must demonstrate a robust credit control process to be approved for invoice discounting. Legally you must notify your customers that the debt has been assigned to a third party, although this message can simply be added to your invoices.

Invoice discounting also offers protection against bad debt but this is dependant on the finance company involved and their assessment of your customers.

Ideal for:
Proven businesses with a significant value of outstanding invoices that want quick access to that money to assist day-to-day cash flow requirements or growth and expansion.

Security required:
Invoice discounting is secured against the sales ledger. Occasionally personal guarantees for a portion of the funds advanced may be required from the director of a limited company.