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How does invoice discounting work?

  Published: 22nd October 2018

Invoice discounting is an ideal finance solution for businesses looking to release cash tied up in their invoices, but also keep the fact that this function is used confidential. Particularly for those businesses operating within industries in which converting receivables into cash can take a long time, or those undergoing a period of growth, invoice discounting help businesses to maintain their cash flow month on month. So how does it work?

 

How invoice discounting works

 

Once an agreement is met between an invoice discounting provider and business, including percentage of invoice released and payment terms, the business can begin to raise invoices. As soon as an invoice is raised a pre-determined percentage (up to 100%) will be released to the company upfront. The percentage of invoice released will depend on a number of factors including the value of the invoice, the industry in which the business operates and a number of other risk factors.

 

Unlike invoice financing, the responsibility of chasing for payment of invoices will fall to the business itself when using an invoice discounting facility. Many businesses find this aspect of invoice discounting of particular benefit, due to the fact that it not only keeps the fact that a finance facility is being used confidential, but also ensures that businesses retain control and maintain vital contact with customers. Once payment for an invoice is received, the remaining funds are subsequently released to the business, minus the finance provider’s fee.

 

Why is invoice discounting so beneficial?

 

With a huge range of benefits to offer our clients, our invoice discounting service is extremely popular with businesses across a range of industries, from recruitment to construction, warehousing to haulage. In our opinion, however, the biggest advantage that this service can offer is its potential to maintain and improve vital business cash flow, something which countless businesses struggle with, particularly when dealing with late payments.

 

Are you looking for the ideal finance solution for your business? Get in touch with the expert team at Zodeq to discuss your requirements.