How can Invoice Discounting Improve Cash Flow?

It doesn’t matter what business sector you operate in, how viable your proposition is or even how many customers you have – the fact is that you don’t have sufficient cash flow, your business will fail. Without cash, businesses cannot operate and will eventually cease to function. Clearly, cash flow is critical to your success, which is why any solution that promises to solve a cash flow shortage is worth careful consideration.

Introducing Invoice discounting

Invoice discounting is one way to improve a short-term cash flow problem. Invoice discounting comes under the umbrella term of invoice finance and allows businesses to raise money against invoices they have issued for services or products delivered. Here’s how it works:

  • You deliver the goods or service to the customer and invoice them as normal;
  • You also send a copy of the invoice to the invoice discounting provider;
  • An advance payment of funds up to 90 percent of the invoice’s value is made available within as little 24 hours;
  • You collect the payment from the customer as normal;
  • When the customer pays the invoice, you receive the balance of the invoice and pay the invoice discount provider a service fee.

Invoice discount vs. factoring

If you are considering an invoice discounting facility, it’s likely you are also aware of invoice factoring. Both have become popular sources of cash flow finance in recent years, and although both raise money against company invoices, there are some significant differences between the two that you should be aware of.

  • The pros   

The biggest difference is that in an invoice discounting agreement, you are still responsible for the credit control process and collecting your own payments. This makes it cheaper than invoice factoring as the finance provider does not have to take on the cost of credit control and collections. It also means the invoice discounting agreement can be kept confidential as there’s no reason for customers to be made aware of the finance agreement. The result is that you can continue to communicate with your own customers and maintain good relations.

  • The cons

With invoice discounting, you are still responsible for collecting your own debts, which means you have to continue this time-consuming process. It can also be more difficult to qualify for an invoice discounting agreement as you need to have an established credit control function and a satisfactory collections process in place. For this reason, businesses that choose invoice discounting need to be profitable, have been operating for at least one year and have audited accounts.

How can invoice discounting boost your cash flow?

  • Cash is received within as little as 24 hours of an invoice being issued to the customer. This allows businesses to access the cash they need to pay bills, rent, taxes, employees and more;
  • Businesses can use invoice discounting to release capital to invest in new projects, stock, machinery and drive their growth;
  • Invoice discounting can release the capital businesses need to compete with larger, more established businesses;
  • Increased cash flow gives businesses additional bargaining power and allows them to take advantage of early payment discounts offered by suppliers;
  • The amount of cash flow a business can access grows in line with its sales. This can further fuel growth;
  • Businesses have 24-hours access to their account to monitor the amount of funding available to them;
  • Businesses are able to accurately forecast the cash flow they will have in the future and reduce the impact of late payments;  
  • Invoice discounting can also sit alongside any existing funding arrangements to increase the available cash.  

Get a quote

Could invoice discounting give your business the cash flow boost it needs to grow? You can compare quotes from the UK’s leading invoice discount providers or call 08000 24 24 51 to discuss your business’s needs.