Selective invoice discounting

Quick facts

Selective invoice discounting is a type of selective u003ca href=u0022 financeu003c/au003e, i.e. a way of borrowing money using your unpaid invoices. It’s similar to u003ca href=u0022 factoringu003c/au003e 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 u003ca href=u0022 discountingu003c/au003e, whereas with u003ca href=u0022, the lender will take over credit control for your customers.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eSelective invoice discounting, like u003ca href=u0022 factoringu003c/au003e, 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 u003ca href=u0022 invoice discountingu003c/au003e or u003ca href=u0022 data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cstrongu003eHow does selective invoice discounting work?u003c/strongu003ernu003culu003ern tu003cliu003eyou decide which invoice(s) you want to financeu003c/liu003ern tu003cliu003eyou send a copy of the invoice(s) to your lender (e.g. invoice discounting provider) for approvalu003c/liu003ern tu003cliu003ethe lender quotes you a fee (a percentage of the total invoice)u003c/liu003ern tu003cliu003ethe lender gives you an advance payment (up to 95%) of the value of each invoiceu003c/liu003ern tu003cliu003eafter the customer pays an invoice the lender gives you the balance of that invoice minus their feeu003c/liu003ernu003c/ulu003e

When you issue an invoice, depending on your terms (or the terms imposed by your customer), you may have to wait for as long as 120 days for the payment to arrive in your bank account. Even though you have fulfilled your side of the transaction, you can’t access the value, which can seriously hinder your cash flow.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eInvoice finance helps your company avoid this problem by unlocking that value, sometimes within 24 hours. A lender advances you the money so you can put it straight to work in your business or use it to pay bills or salaries.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eThis 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.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eAs with all types of u003ca href=u0022 financingu003c/au003e, 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.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eWith both selective invoice discounting and u003ca href=u0022 factoringu003c/au003e, 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.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eUnlike u003ca href=u0022, invoice discounting allows you to you keep control over your sales ledger and client relationships. It’s confidential.

u003cstrong data-rich-text-format-boundary=u0022trueu0022u003eInvoice discounting u003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022 discountingu003c/au003e 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 revenue as it allows them to secure funding against their entire sales ledger. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eInvoice 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. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cstrongu003eInvoice factoring u003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022 factoringu003c/au003e also lets bigger companies borrow money against their sales ledger, but it’s different to invoice discounting because the process is disclosed. The lender takes control of your credit collection and deals directly with your customers. They pay the lender, who then forwards you the balance less their fee. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eInvoice finance can benefit smaller businesses as it means they don’t have to chase their outstanding payments, although they have to prove to the lender they generate a reliable revenue. However, it may not be cost-effective for SMEs with fluctuating cash flows.  u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cstrongu003eSelective invoice financing u003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022 invoice financingu003c/au003e lets your company borrow against specific invoices, rather than your entire sales ledger. This form of invoice finance is suitable if your company generates a significant proportion of its income from large, steady customers, and you only want to finance those invoices. Selective invoice financing can also help SMEs raise working capital if they have fluctuating cash flows, as borrowing against their sales ledger may not be cost-effective. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eSelective invoice financing comes in two forms: selective invoice discounting and spot factoring. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cstrongu003eSpot factoringu003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022 factoringu003c/au003e 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. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cstrongu003eConfidential invoice finance u003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022 invoice financeu003c/au003e is a suitable funding option if you prefer your customers to remain unaware that you’re securing finance against their invoices. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eConfidential invoice finance refers to forms of invoice finance that aren’t disclosed to your customers.

Register now for funding and savings options tailored to your business.

Ready to grow your business?

Clever finance tips and the latest news

delivered to your inbox, every week

Join the 70,000+ businesses just like yours getting the Swoop newsletter.

Free. No spam. Opt out whenever you like.

Looks like you're in . Go to our site to find relevant products for your country. Go to Swoop No, stay on this page