Uk Commercial Finance

Invoice discounting

What is invoice discounting?

Invoice discounting is type of factoring that allows you to receive advances of funds against outstanding sales invoices. Some specialist UK invoice discounting brokers can set up a plan for you including paying you up to 90% of the value of your invoices in 24 hours of them being raised.

You can normally access invoice discounting if your business has a good track record and at least £500,000 of annual turnover.

Note that discounter is the title given to the firm which carries out the invoice discounting for you. They check your business credit and profit history before they agree to work with you. They also check and give you feedback on your sales ledger procedures.

How does invoice discounting work?

  • you send your customers invoices for completed work
  • you send a sales day book to the discounter
  • the discounter pays you a set percentage of the invoice values which can be up to 90%
  • you still have control of your sales ledger. Therefore you communicate with, and issue statements to, your customers helping to keep goodwill
  • you collect payment from your customers, bank the payments into a trust bank account and inform the discounter about relevant changes
  • the discounter takes the funds from the trust bank account and releases the outstanding invoice amounts owed to you minus charges.

Note that your customers are not normally made aware of you using invoice discounting services.

Invoice discounting and assets

It's worth knowing that funds advanced under invoice discounting can be increased when a number of assets are taken into consideration. Some invoice discounting brokers offer an asset based lending service which gives funds secured against invoices, stock values, plant and existing plant, machinery, land and buildings.

The assets being assessed will depend on the finance you need and the strength of the assets.