{"id":2821,"date":"2020-03-23T17:22:17","date_gmt":"2020-03-23T17:22:17","guid":{"rendered":"http:\/\/localhost\/2020\/swoopMW20\/?post_type=knowledge-hub&p=2821"},"modified":"2024-06-13T14:55:53","modified_gmt":"2024-06-13T14:55:53","slug":"invoice-discounting","status":"publish","type":"knowledge-hub","link":"https:\/\/swoopfunding.com\/na\/knowledge-hub\/invoice-discounting\/","title":{"rendered":"Invoice discounting"},"content":{"rendered":"\n
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\n \n What is invoice discounting? <\/a>\n <\/h5>\n <\/div>\n\n
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Invoice discounting is arguably the simplest form of\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/invoice-finance\/u0022u003einvoice financeu003c\/au003e\u00a0\u2013 it\u2019s a way of borrowing money using your unpaid invoices. Invoice discounting is aimed at larger, established companies with a relatively high revenue, and is designed to finance your entire sales ledger (i.e. all of your invoices). It\u2019s usually confidential, so your customers and suppliers won\u2019t be aware of the arrangement.u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eAs with all types of\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/invoice-finance\/u0022u003einvoice financingu003c\/au003e, invoice discounting lets you sell unpaid invoices to a lender in return for a cash advance\u00a0u003cemu003e\u2013u003c\/emu003e\u00a0a percentage of the value of each invoice. Once your customer has paid an invoice, the lender pays you the remaining balance minus their fee. In other words, if you\u2019ve issued invoices to your customers and these haven\u2019t yet been paid, invoice finance unlocks this value early. It\u2019s like a\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/business-loans\/u0022u003ebusiness loanu003c\/au003e, but instead of using a physical asset like a building as security, invoice finance uses your accounts receivable.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Why choose invoice discounting? <\/a>\n <\/h5>\n <\/div>\n\n
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Invoice discounting is\u00a0very similar to\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/invoice-factoring\/u0022u003einvoice factoringu003c\/au003e. The main difference is that with invoice discounting your customers won\u2019t be aware that you are using a finance provider to help with your cash flow \u2013 hence why it\u2019s often called \u2018confidential\u2019 invoice discounting. You remain in control of your sales ledger, you collect payments as normal and you maintain communication with your customers.u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eYour lender may, however, insist on a \u2018disclosure\u2019 clause \u2013 this means you will have to mark invoices as \u2018assigned to an invoice provider.\u2019<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Is it suitable for an SME? <\/a>\n <\/h5>\n <\/div>\n\n
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If you don\u2019t have in-house credit management processes in place,\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/invoice-factoring\/u0022u003einvoice factoringu003c\/au003e\u00a0might be a more suitable option, because you wouldn\u2019t need to chase invoices yourself.u003cbr data-rich-text-line-break=u0022trueu0022 \/u003e\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eInvoice discounting and invoice factoring are generally more widely available to established businesses rather than startups \u2013 you need to have a reliable revenue.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Pros and cons of invoice discounting <\/a>\n <\/h5>\n <\/div>\n\n
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Because invoice discounting is a riskier prospect for your finance provider than factoring, you might find it hard to obtain if you\u2019re an early-stage business. To qualify for invoice discounting you need to reassure your finance provider that they\u2019ll be repaid by your customers after advancing money to you. So you will need:rnu003culu003ern tu003cliu003ean established method of credit collectionu003c\/liu003ern tu003cliu003ea track record that proves that your clients pay on timeu003c\/liu003ernu003c\/ulu003ernIf you want to finance only specific invoices \u2013 and not your entire sales ledger \u2013 then you might want to consider\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/selective-invoice-discounting\/u0022u003eselective invoice discountingu003c\/au003e or\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/spot-factoring\/u0022u003espot factoringu003c\/au003e.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Is it suitable for an SME? <\/a>\n <\/h5>\n <\/div>\n\n
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If you don\u2019t have in-house credit management processes in place,\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/invoice-factoring\/u0022u003einvoice factoringu003c\/au003e\u00a0might be a more suitable option, because you wouldn\u2019t need to chase invoices yourself.u003cbr data-rich-text-line-break=u0022trueu0022 \/u003e\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eInvoice discounting and invoice factoring are generally more widely available to established businesses rather than startups \u2013 you need to have a reliable revenue.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Pros and cons of invoice discounting <\/a>\n <\/h5>\n <\/div>\n\n
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Because invoice discounting is a riskier prospect for your finance provider than factoring, you might find it hard to obtain if you\u2019re an early-stage business. To qualify for invoice discounting you need to reassure your finance provider that they\u2019ll be repaid by your customers after advancing money to you. So you will need:rnu003culu003ern tu003cliu003ean established method of credit collectionu003c\/liu003ern tu003cliu003ea track record that proves that your clients pay on timeu003c\/liu003ernu003c\/ulu003ernIf you want to finance only specific invoices \u2013 and not your entire sales ledger \u2013 then you might want to consider\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/selective-invoice-discounting\/u0022u003eselective invoice discountingu003c\/au003e or\u00a0u003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/spot-factoring\/u0022u003espot factoringu003c\/au003e.<\/p>\n <\/div>\n <\/div>\n <\/div>\n

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\n \n Have you also considered? <\/a>\n <\/h5>\n <\/div>\n\n
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u003cstrong data-rich-text-format-boundary=u0022trueu0022u003eInvoice discounting\u00a0u003c\/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/invoice-discounting\/u0022u003eInvoice discountingu003c\/au003e\u00a0is 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.\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eInvoice discounting is confidential, so your customers don\u2019t know you\u2019re using their invoice as collateral. Your company remains in charge of its own credit collection. It\u2019s also considered riskier so your lender may require evidence that your customers pay promptly and you have in-house capacity to chase outstanding payments.\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003cstrongu003eSpot factoringu003c\/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/spot-factoring\/u0022u003eSpot factoringu003c\/au003e\u00a0allows you to borrow money against specific unpaid invoices rather than your sales ledger, so it\u2019s 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.\u00a0Spot factoring may suit SMEs that don\u2019t have the resources to chase outstanding payments and are happy to let a lender take the responsibility on their behalf.\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003cstrongu003eConfidential invoice finance\u00a0u003c\/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/confidential-invoice-finance\/u0022u003eConfidential invoice financeu003c\/au003e\u00a0is a suitable funding option if you prefer your customers to remain unaware that you\u2019re securing finance against their invoices.\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eConfidential invoice finance refers to forms of invoice finance that aren\u2019t disclosed to your customers. We\u2019ve already described invoice discounting, but confidential invoice factoring and CHOCs (Customer Handles Own Collections) are other examples of this type of finance.\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003e\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003cstrongu003eCHOCs (Customer Handles Own Collections)u003c\/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003ca href=u0022https:\/\/swoopfunding.com\/na\/knowledge-hub\/chocs-customer-handles-own-collections\/u0022u003eCHOCs, short for Customer Handles Own Collections,u003c\/au003e\u00a0is a cross between invoice discounting and invoice factoring. As with invoice discounting, you deal directly with your own customers. However, like invoice factoring, your customers pay the lender instead of your company, so they know you\u2019re using their invoices to secure working capital.\u00a0u003cbr data-rich-text-line-break=u0022trueu0022 \/u003eu003cbr data-rich-text-line-break=u0022trueu0022 \/u003eCHOCs are suitable if you\u2019d like to maintain a direct relationship with your client or for early-stage companies that don\u2019t qualify for invoice discounting, as long as they can prove they have the in-house capacity to chase outstanding payments. They can also offer a more cost-effective option for companies with lots of small customers.<\/p>\n <\/div>\n <\/div>\n <\/div>\n <\/div>\n \n