Invoice discounting is an increasingly popular method of increasing cash flow via selling unpaid invoices to a third party. Traditional invoice discounting allows a company to get a fast influx of cash while retaining total control of its company ledger (i.e. there’s no need for a business to inform its customers that invoices have been sold.)
Invoice Discounting may be offered on a Confidential or Disclosed Basis
Depending on the level of risk for the lender, however, they may insist on a ‘disclosed’ clause, meaning that it will be necessary to mark invoices as ‘assigned to an invoice provider.’ The vast majority of invoice discounting is actually ‘disclosed’ simply because you would need a substantial turnover for the lender to feel comfortable enough to give you the option.
How does disclosed invoice discounting different from confidential invoice discounting?
- Any company invoice that has been sold will need to be clearly marked with a ‘Notice of Assignment’.
- It is usually more expensive than confidential discounting, due to increased administration fees.
- Your customers will pay the finance company directly
- It could affect your customer relationships, once they become aware you’re using business funding
- Not all lenders offer ‘disclosed invoice discounting.’