Definition
Invoice discounting lets a business draw funds against money customers owe it, while the business itself keeps chasing and collecting those accounts. Customers usually pay the business, often unaware of the arrangement, and the business repays the provider as payments arrive. It tends to suit larger, well-organised businesses with strong credit control.
Invoice discounting gives a business the cash benefit of invoice finance while keeping the customer relationship in its own hands.
How it works
The business submits invoices or a ledger report to the provider and draws an agreed percentage of their value. It keeps collecting from customers and repays the facility as payments arrive. Providers usually require regular reporting, such as aged debtor reports, and may audit the ledger from time to time.
Who it suits
Businesses with strong credit control, steady invoicing and a spread of reliable customers tend to suit discounting. Smaller businesses that want help chasing payments may prefer factoring.
Costs and terms
Expect a combination of service and discount charges, plus possible setup and minimum fees. Compare the cost with a line of credit using the invoice finance cost calculator. For options that suit your ledger, make one enquiry.
Common questions
Is invoice discounting confidential?
Often yes. Customers keep paying the business as usual and may not know a facility exists.
Who is invoice discounting best for?
Businesses with established credit control, a good spread of creditworthy customers and reliable reporting.
Sources and further reading