Selective invoice discounting

Quick facts

Selective invoice discounting is a type of selective invoice finance, i.e. a way of borrowing money using your unpaid invoices. It’s similar to spot factoring in that it allows you to finance specific invoices (or customers). The key difference is that your customers are not usually aware you are using invoice discounting, whereas with factoring, the lender will take over credit control for your customers.

Selective invoice discounting, like spot factoring, allows you to unlock finance by selling specific unpaid invoices at a discount to a lender in return for a cash advance. You are not handing your entire sales ledger over to a lender ? as you would be with confidential invoice discounting or factoring).

This can be useful if you take large orders from one customer, but your other invoices are smaller or irregular. By using selective invoice finance you can get advances for your large invoices, leaving the smaller ones unaffected.

As with all types of invoice financing, your cash advance is a percentage of each invoice’s value. Once your customer has paid an invoice, the lender pays you the remaining balance minus their fee.

With both selective invoice discounting and spot factoring, the individual invoices you choose to finance don’t have to be from the same customer, you decide which ones you finance and which ones you choose to handle yourselves.

Unlike factoring, invoice discounting allows you to you keep control over your sales ledger and client relationships. It’s confidential.

How does selective invoice discounting work?

  • you decide which invoice(s) you want to finance
  • you send a copy of the invoice(s) to your lender (e.g. invoice discounting provider) for approval
  • the lender quotes you a fee (a percentage of the total invoice)
  • the lender gives you an advance payment (up to 95%) of the value of each invoice
  • after the customer pays an invoice the lender gives you the balance of that invoice minus their fee.

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