It is ideal for businesses who face cashflow challenges or want to finance growth, as it fills the gap of up to 90-days between raising a customer invoice and being paid. By releasing that cash quickly, you can manage the day-to-day activities of your business and plan for growth with a sustainable cash flow that builds working capital.
Invoice discounting, like invoice factoring is flexible as it matches the performance of your business. Based on your invoices, this means you will not struggle with high fixed repayments as you would with a loan or credit card and, on the flip side, your funding won’t hold you back when your business growth accelerates.
With so many alternative finance options now available, it can be difficult to know which one is the most appropriate and if invoice discounting is right for you. Of course, our team at Compare Your Funding can advise as part of the free funding review we offer – in the meantime below is a simple checklist which may help. Invoice discounting is a good option if:
- Your customers generally pay on time
- You have effective and robust credit control procedures in place
- You have minimal bad debts
- Customers have a minimum 30-day payment term
If you know invoice financing is for you but are not sure whether to choose discounting or factoring, the key question is do you carry out credit management processes in-house. If not, invoice factoring may be more suitable.
Discounting services are generally more widely available to established businesses rather than start-ups which, by their nature, would not have reliable turnover and credit management processes.
financial/accounting side of discounting your invoices is just one area that you will need to think about.