Advantages of Invoice Discounting
Typically, success in business is determined by a simple factor and that is the careful management of money. Businesses within every industry face the challenges of maintaining a healthy cash flow, regardless of the turnover bracket they have. Cash flow is among the factors which determines if a business can maintain momentum.
On a regular basis, a company may be confronted with struggles to meet the demands of suppliers, payroll and other stakeholders. A number of businesses fail because they run out of cash, although customers have considerable amounts of outstanding debts owing to these businesses.
A business could find that there is a precious source of working capital in its sales ledger. Invoice discounting serves to bridge the gap between when a sale was made and the point at which payment is received. A percentage of the value of the sales ledger is released by the finance provider, typically within a 24-hour period.
Invoice discounting is essentially a flexible and popular funding solution for businesses of virtually any industry and size, from financial giants to loss-making entities. Businesses that sell on credit to other companies and issue invoices that have payment terms between 30 and 90 days, could be eligible for invoice discounting.
The funds that are released create working capital that could enable growth of the company and investment in the business. Additionally, the facility will grow in line with the business. This is an indication that as the business expands, more funding could be accessed from the provider. This makes invoice discounting an especially attractive option for growing or seasonal businesses.
How it Works
The company invoices their customers and then a copy of the invoice is sent to the invoice discounter.
Within 24 hours or so, the invoice discounter advances as much as 95 percent of the value of the invoice.
Full responsibility for the administration of debt collection and the sales ledger is retained by the borrowing business.
The outstanding balance of the value of the invoice is paid over by the provider, minus any fees.
Invoice discounting could be the solution for larger businesses that would like to operate the facility without customers knowing about the involvement of the lender or businesses that have aggressive in-house credit control procedures.
Invoice discounting can be administered with an additional benefit of credit insurance, which indicates that the company will not have to make repayments to the finance provider in the event that their customers default on the terms of payment.
The basic advantages of invoice discounting are highlighted below:
The credit line can be increased with the value of the sales ledger and the volume of the invoices, remaining at a particular percentage of the entire amount outstanding at all times.
Cash can be acquired without any assets being used as collateral; only accounts receivables and invoices are used for the transaction.
Credit discounting is basically a loan that is similar to how a credit card functions; for example, the company is only required to pay interest on the amount of funds that is taken from the line of credit. As a result, even though the company might have $9500 available in cash, they have the option of choosing the amount of that money they would like to access at any given time.
For the most part, companies that provide invoice discounting services offer insight and business advice that are usually very helpful to the company.
If the company cash cash flow for repaying existing debts, making investments and satisfying monthly financial obligations has dwindled, invoice discounting is a great solution that businesses may want to consider. Fundingsolutions.co.uk are experts in invoice discounting