Invoice discounting: the funding, without the visibility.
Invoice discounting releases working capital against your unpaid invoices while you carry on collecting payments yourself. Where a provider agrees, the facility can be confidential, so your customers see no change.
- Credit control
- Retained by your business
- Customer awareness
- Often confidential
- Often suits
- Established firms with robust systems
- Typical requirement
- Reliable ledger management
What invoice discounting is
Invoice discounting works on the same principle as factoring: a proportion of your unpaid invoices is advanced to you, with the balance following when the customer pays. The key difference is who does the collecting. With discounting, that stays with you.
Your customers continue to pay into a designated account and your team chases payment as normal. Because the provider is not in contact with your customers, many discounting facilities can operate confidentially. Confidentiality is at the provider's discretion and depends on their assessment of your systems and controls.
Discounting tends to suit businesses that already run credit control competently and simply want a source of working capital that expands with the ledger.
How invoice discounting works
- 01
Invoice as normal
You raise invoices and send them to customers with no change to your usual process.
- 02
Upload your ledger
You submit invoice details to the provider, typically through an online platform, and draw the funds you need against them.
- 03
You collect payment
Your credit control team follows up and customers pay into a nominated account.
- 04
Availability refreshes
As invoices are settled, the funds advanced against them are repaid and availability is recalculated against new invoices.
The precise mechanics, timings and documentation vary between providers. This is the general shape of the arrangement.
Businesses it often suits
- Businesses with an established credit control function
- Companies that prefer customers not to know funding is in place
- Firms with good systems, reporting and ledger discipline
- Larger or more mature businesses seeking flexible working capital
- Businesses looking to move on from a factoring facility they have outgrown
Typical eligibility indicators
- A functioning credit control process with reasonable collection performance
- Accurate, regularly reconciled sales ledger
- Ability to provide the reporting the provider requires
- A spread of creditworthy business customers
These are indicators, not criteria. Each provider assesses businesses on their own terms, and meeting all of them does not guarantee a facility.
Is invoice finance suitable for my business?Where it helps, and what to weigh up
No facility is right for every business. These are the points that most often decide the matter.
Advantages
You stay in front of your customers
Relationships and collections remain with your own team, with no third party involved in the conversation.
Confidential where available
Subject to the provider's criteria, the facility can operate without customers being notified.
Generally lower service fees
Because the provider is not running collections, service charges tend to be lower than for a comparable factoring facility.
Scales with turnover
Availability is driven by your ledger, so a growing business can typically draw more as it invoices more.
Considerations
Higher expectations of your systems
Providers will want confidence that your ledger is accurate and that collections are managed well. Reporting requirements are usually more involved than with factoring.
You still carry the collections workload
The time and cost of chasing payment remain with you. If that is a strain, factoring may be a better fit.
Availability may not be universal
Confidential discounting is not offered to every business. Provider criteria vary, and a broker can help identify where your profile is likely to be well received.
Discounting compared with invoice factoring
Both release cash against unpaid invoices. The difference is who runs credit control, whether your customers know, and what that means for cost and control.
Invoice factoring
Funding plus collections
- Who collects payment
- The provider's credit control team
- Customer awareness
- Usually disclosed
- Control of customer relationships
- Shared with the provider
- Demands on your systems
- Lower
- Service fee
- Generally higher, reflecting the collections service
- Often suits
- Smaller or growing firms, lean back offices
Invoice discounting
Funding, you keep control
- Who collects payment
- Your own team
- Customer awareness
- Often confidential, subject to provider criteria
- Control of customer relationships
- Retained by your business
- Demands on your systems
- Higher: accurate ledger and reporting expected
- Service fee
- Generally lower
- Often suits
- Established firms with strong processes
Not sure which is appropriate?
Most businesses know within one conversation. Some move from one to the other as they grow.
Invoice Discounting questions
Answers to the questions we are most often asked about this type of facility.
No. Confidential invoice discounting is available from many providers, but it is subject to their assessment of your business. Some facilities are disclosed, and some businesses are offered factoring first and move to confidential discounting later.
Typically a regular ledger upload, reconciliations and management information. The precise requirements vary by provider. We will make sure you know what is expected before you commit.
Possibly. Provider appetite depends more on the quality of your processes and debtors than on size alone, though some providers do set minimum turnover levels. If discounting is not available initially, a factoring facility can be a stepping stone.
An overdraft is a fixed limit set by the bank and can be withdrawn. Discounting availability is linked to your sales ledger, so it tends to rise as your invoicing grows. Many businesses use it as a more scalable alternative or complement to an overdraft.
- The umbrella term
Invoice Finance
A way for businesses that sell on credit terms to access a proportion of the value of unpaid invoices before customers pay.
Learn more - Funding plus collections
Invoice Factoring
Release cash against unpaid invoices while the provider manages credit control and collects payment from your customers.
Learn more - Fund what you choose
Selective Invoice Finance
Finance individual invoices or specific customers as the need arises, rather than committing your whole sales ledger.
Learn more
Could invoice discounting work for your business?
Tell us about your customers, your invoicing and where the pressure sits. We will tell you whether this structure fits, and what the alternatives are.
No obligation. We will tell you plainly if invoice finance does not look like the right answer.