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Invoice Discounting

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Invoice discounting is a form of invoice finance usually aimed at businesses with an annual turnover of £250,000 or more, although there are exceptions to this, in the main it is aimed at larger turnover businesses.

It is much like invoice factoring, but with one fundamental difference. With invoice discounting you chase payment of your invoices. Discounting is simply a form of finance based on the value of your invoices.

The advantages are that it tends to cost less and you are not reliant on a third party handling your credit control.

Some businesses like a third party chasing their invoices, others feel they lose control of a vital part of their business which can be executed more effectively if they do it themselves. For businesses that would prefer to look after their own credit control, then invoice discounting is most definitely the option to take. If you like the convenience of a third party looking after this for you then factoring is probably the option for you.

Larger Firms

This type of finance is often taken up by larger firms and even some quite large businesses including some blue chip businesses use it to help cash flow. If you have a large turnover then you can often negotiate some very attractive deals.

Companies that offer you such services include:

  • Bibby Financial Services
  • SME Invoice Finance
  • ABN Amro Commercial Finance
  • Hitachi Capital
  • RBS Invoice Finance
  • Lloyds TSB Invoice Finance
  • HSBC Business Finance

You should always shop around when looking for any finance product and this is no exception. Also when these companies offer you a deal always haggle. Do not accept the first deal they offer you.

Calculating The Cost of Invoice Discounting

A good way to access the cost of any offer you get is to use an invoice finance calculator. There are a number of calculators designed for this purpose that can be found on the net. They can also help you to work out what fees you can afford to pay and what you are going to aim to negotiate with a commercial finance company.

Some Disadvantages

Some of the disadvantages are that it can be an expensive form of finance when you compare it with more main stream forms of commercial finance.

Once you have this type of finance in place you will no longer be legally responsible for your sales ledger and there is one down side to this. It can make it harder to get finance from other avenues such as loans as the invoices you issue are no longer one of your assets as you have collected the money straight away. For many businesses this is not a problem, but if you are looking to get other forms of finance then it is worth considering.

While factoring and discounting can be very useful to help the cash flow of a business you can become reliant on them. If your business is looking at it as a short term solution then be careful how you plan your finance whilst using these services.

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