There are many financial support services available to businesses today – from factoring to asset finance, all these services are designed to give business enterprises the leverage they need when it comes to their finances.
If you find yourself having difficulties with managing your cashflow, financing services offer a good and cost-effective solution so you don’t have to worry about your cash running out, especially when you need it the most.
One financing service that has gained more ground, especially in recent years, with a lot of business owners is invoice discounting.
Invoice discounting falls under the Invoice Finance solutions category and is similar to another financing service, factoring.
Whilst both have the same basic principle – that of giving business owners a cash advance according to their sales ledgers – there are some differences between the two.
What you need to know about invoice discounting
As mentioned, invoice discounting is a service that allows you to draw money based on your pending invoices whilst allowing you to remain in full control of your sales ledgers.
One thing to remember is that invoice discounting is only provided to those businesses which sell their services or products to other businesses, on credit. It is not provided to retail or cash trading businesses.
The primary difference between invoice discounting and factoring is the fact that with invoice discounting, you can have total control over the management of your customers, your sales ledgers, and your credit control, but you can also avail of various support services and advice from the financing company, as well as credit insurance.
What to expect with invoice discounting
If you are thinking of making use of invoice discounting, there are some things that you should know.
First of all, most invoice discounting services are given only to companies which already have a good track record, and which also have a turnover rate annually of a minimum of £500,000.
But it is wise to confirm this with your prospective financing provider as terms may be different for each.
The financing provider will most likely make a visit to your enterprise and do a review and assessment of all your finances.
They will also assess your business plan and determine your suitability for this kind of arrangement.
And once the invoice discounting service starts, the financing provider will likely check on your business on a regular basis in order to see that all your business processes and procedures are working well.
When an agreement has been reached
Once you have forged an agreement with the financing provider, you will usually pay them a fee which is normally a percentage of the invoices’ value, or a set fee based on the amount which will be advanced.
The provider will then be given the details of your sales ledger and will give you the funds at a set rate of percentage. When your clients make their payments, this goes to the financing provider.
Another good aspect about invoice discounting is that the balance of your account will vary as invoices are sent, and usually increase according to the turnover.
Invoice discounting and factoring specialists like Ultimatefinance.co.uk even give you the option to have either disclosed invoice discounting or confidential invoice discounting – with the disclosed service, your clients are aware of the service, whilst with the confidential service, your clients are unaware of the provider’s involvement.
Either way, you stay in control of your sales ledger and your clients and have the cash that you need at all times.