Invoice discounting

Invoice discounting is very similar to invoice factoring. The main difference is that with invoice discounting your customers won’t be aware that you are using a finance provider to help with your cash flow – hence why it’s often called ‘confidential’ invoice discounting. You remain in control of your sales ledger, you collect payments as normal and you maintain communication with your customers.

Your lender may, however, insist on a ‘disclosure’ clause – this means you will have to mark invoices as ‘assigned to an invoice provider.’

If you don’t have in-house credit management processes in place, invoice factoring might be a more suitable option, because you wouldn’t need to chase invoices yourself.
 
Invoice discounting and invoice factoring are generally more widely available to established businesses rather than startups – you need to have a reliable turnover.

Because invoice discounting is a riskier prospect for your finance provider than factoring, you might find it hard to obtain if you’re an early-stage business. To qualify for invoice discounting you need to reassure your finance provider that they’ll be repaid by your customers after advancing money to you. So you will need:

• an established method of credit collection
• a track record that proves that your clients pay on time

If you want to finance only specific invoices – and not your entire sales ledger – then you might want to consider selective invoice discounting or spot factoring.

If you don’t have in-house credit management processes in place, invoice factoring might be a more suitable option, because you wouldn’t need to chase invoices yourself.
 
Invoice discounting and invoice factoring are generally more widely available to established businesses rather than startups – you need to have a reliable turnover.

Invoice discounting 
Invoice discounting is the simplest type of invoice finance. It involves a lender advancing you money against unpaid invoices and charging a fee based on the value. This form of finance is suitable for bigger companies with a relatively high turnover as it allows them to secure funding against their entire sales ledger. 
Invoice discounting is confidential, so your customers don’t know you’re using their invoice as collateral. Your company remains in charge of its own credit collection. It’s also considered riskier so your lender may require evidence that your customers pay promptly and you have in-house capacity to chase outstanding payments. 

Spot factoring
Spot factoring allows you to borrow money against specific unpaid invoices rather than your sales ledger, so it’s also suitable for companies with at least a few large customers. The main difference with selective invoice discounting is that spot factoring is disclosed. You hand over control of the invoices you choose to finance to the lender who collects payment from your customer and forwards your company the balance less its fee. Spot factoring may suit SMEs that don’t have the resources to chase outstanding payments and are happy to let a lender take the responsibility on their behalf. 

Confidential invoice finance 
Confidential invoice finance is a suitable funding option if you prefer your customers to remain unaware that you’re securing finance against their invoices. 
Confidential invoice finance refers to forms of invoice finance that aren’t disclosed to your customers.