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• 21 Jan

  What Is Invoice Discounting

  

  What Is Invoice Discounting?

  This article answers the question "What is invoice discounting?". We define invoice discounting as:

  "Prepayments against unpaid receivables".

  That is the essence of it, if you have a receivable e.g. a sales invoice on credit terms or an application for payment, and it is unpaid, and the debtor is a business, you can get a prepayment against that invoice. This can range from c. 70% up to 100% of the face value of the receivable.

  Whole Turnover Or Selective

  You can do this for a single transaction, called a selective facility - or for all the transactions on your outstanding sales ledger (called whole or full turnover options).

  Is ID Invoice Financing?

  Sometimes we are asked what is the difference between invoice discounting vs invoice financing. The answer is that the former is just one type of the latter. There are many other forms of this type of funding.

  The remainder of this article takes a close look at what is invoice discounting in finance.

  What Is Invoice Discounting In Finance?

  So, invoice discounting in finance (also called ID) is prepayments against unpaid invoices and applications for payment. It is one of a family of receivables financing facilities. There are several different product variations which are explained in our Receivables Financing Guide.

  Key Features Of ID

  The key feature of ID is that it allows the user to retain control of their own credit control activities. In some cases, the facility can be fully confidential (Confidential Invoice Discounting or CID) such that the debtors are not aware of the involvement of the invoice discounting company.

  Some companies prefer this modus operandi as they like to retain control of all communication with their customers. However, these products are not the best fit if you are looking for an outsourced credit control function, in addition to prepayments. In those cases, factoring is a better option (funding plus credit control outsourcing).

  Additional Protection

  ID can come with bad debt protection, as an added extra, or it can operate on a recourse basis. In the case of the latter, you assume the risk should customers become insolvent.

  Summary Of What Invoice Discounting Is

  These facilities are ideal ways of boosting your working capital position, and improving your cash flow, without having to relinquish any control of your credit control and debtor contact.

  A way to improve the cash flow and liquidity of a company is really what invoice discounting is.

  By Glenn Blackman