Invoice Discounting allows a business to advance payments tied up in outstanding invoice in a confidential manner. It involves a lender advancing an agreed percentage of the invoice value, typically 80-90% of the total invoice figure, being repaid, minus charges, once the payment terms of the contract falls due and payment is collected from the customer. Invoice Discounting can be confidential, such that the customer is unaware of the facility, whilst the supplier can retain responsibility for all sales ledger administration.
Invoice Discounting quotes can only be provided where goods or services are supplied between one business and another on credit terms. Bad debt protection may be included in the facility if required.
The process of invoice discounting begins with the business uploading invoices to the lender. This is often conducted on an online platform. The lender then reviews the invoice and will usually supply the majority of the invoice’s value to the business within 24 hours. The business is free to use the cash where it is needed most.
Once the payment terms fall due (ie, 60 days payment), the business retains responsibility for running the sales ledger, issuing statements, collecting payments and chasing slow payers, if necessary.
Once the business collects the money due, it is put into a special bank account (trust account) and the lender is notified. The lender then pays the remaining balance of the invoice value which was not initially supplied to the business, less an agreed charge. Charges consist of a service fee as a percentage of the annual turnover and an interest charge on the funds advanced to the business. The charges are negotiated with each business on a case-by-case basis.
Invoice Discounting suits larger businesses with a higher turnover – usually upwards of £250,000 – that are sufficiently experienced and resourced to be able to manage their own sales ledger and are looking at alternative (or additional) methods of borrowing.
It is not untypical for Invoice Discounting to be used as a re-financing tool, or as part of a package of finance to facilitate a management buy-out (MBO) or buy-in (MBI).
The principal advantage is that it gives a business an immediate injection of cash, usually within 24 hours, and the facility grows as the business expands. It also has the advantage of leaving the business in charge of its sales ledger.
Touch Financial is the specialist broking division of the SFP Group.
Set up in 2008, it has become the largest invoice finance brokerage in the UK, winning numerous awards for its service and has assisted thousands of business owners nationwide secure funding.
It is authorised and regulated by the Financial Conduct Authority and prides itself on delivering a high quality service.
If you are a business owner considering invoice finance for the first time, seeking a replacement to an existing invoice finance facility or just looking into alternative funding options to a standard loan or overdraft for your business then contact Touch Financial today for a free consultation about your requirements.