• 31 May

    Explaining The Invoice Discounting Product Decision Tree.

    Explanation of the product options with invoice discounting.Invoice discounting is the simplest of invoice financing services, but there are a number of product options that need to be understood in order to select the correct service for you.

    Invoice discounting means that you receive funding only, without a credit control service.

    We can guide you through this process over the phone, just call Sean in confidence on 03330 113622, or you can use our free Online Product Finder.

    Invoice Discounting Product Decision Tree

    There are a number of simple questions to answer, within the product decision tree, that will determine the type of invoice discounting product that you need. They are as follows:

    1. Do you want ongoing funding against all your invoices, or to just choose a few to have funded as and when needed?

    2. Do you want the service for UK and customers abroad, or just UK customers?

    3. Are you worried about customers failing?

    4. Do you mind if customers know you are using a discounting service?

    5. How do you want to transmit your invoice data?

    The answers to these question determine your product selection. Below I will address your answers to each question in turn.

    Full Turnover Or Selective?

    If you are looking to maximise your working capital, funding against all your invoices might be your preference. This is commonly called a whole turnover, or full turnover facility. By submitting your entire sales ledger for funding, in addition to maximising the funding generated, you are likely to find that they cost is less than if you choose a selective facility.

    Alternatively, if you just need a little help over a current cash flow problem, or you think you might want to dip in and out of the funding in the future, a selective invoice finance facility might suit you best. This type of facility commonly avoids any commitment to minimum turnover levels. However, you are likely to pay a premium for that flexibility.

    UK And Or Export Customers?

    If you only want the funding against sales to UK debtors that is the simplest facility. However, some discounters will also handle sales to export territories overseas, either in addition to UK sales or exclusively. Only a limited number of discounters will finance export sales.

    Are You Worried About Your Debtors Failing?

    If you have a well spread sales ledger, you may decide that you are not worried about any single debtor failing, and being unable to pay you. If you have prime debtors, or significant balances to some customers, you may want to hedge against the customer failing. You can do this by adding a "bad debt protection" option to your facility. This will protect you if your debtors become insolvent, but normally comes at a cost premium. The exact terms, and level of cover, will vary between providers.

    Do You Mind If Customers Know You Are Using Invoice Discounting?

    The simplest, cheapest option is normally what we call a disclosed facility. That is where your customers are aware of the involvement of a discounter. However, if you don't want customers to know, you could opt for "confidential invoice discounting". With that facility, all contact with the customers is in the name of your business and there will be no assignment clause on your invoices. This means that customers are unaware that you are using a discounting service. There may be a slightly higher charge for a confidential facility, due to the additional risk that the funder is taking.

    How Do You Want To Submit Your Invoice Data?

    How you submit your invoice and sales ledger data to your provider, can drive the amount of work involved. Most providers now offer an electronic upload facility, where you can upload your invoices, or enter sales ledger balances. However, some also offer a full sales ledger upload, which can even operate in the background without any intervention from you. This makes it a very simple option, and some of this type of facility also avoid the need for monthly reconciliations between your sales ledger, and the figures held by your funder.

    Other Options

    In addition to the above options, there are a number of other services that you may, or may not want to add onto your discounting arrangement. They include trade finance, to fund imports. Payroll management, to take over the paperwork involved with running a staff payroll. There are also other offers and differences that we would be happy to explain to you.

    Alternative Options

    See our free guide to the various different: Types Of Invoice Discounting.

    Also for more general guidance about the different form of funding please see our: Free Guide To Invoice Financing.

    By Glenn Blackman

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Examples of funders we work with:

leumi abl
pennyfreedom
funding invoice
muse
giant finance
metro bank sme finance