{"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":"2023-06-01T14:03:04","modified_gmt":"2023-06-01T14:03:04","slug":"invoice-discounting","status":"publish","type":"knowledge-hub","link":"https:\/\/swoopfunding.com\/za\/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\u00a0invoice finance<\/a>\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 turnover, 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.

As with all types of\u00a0invoice financing<\/a>, invoice discounting lets you sell unpaid invoices to a lender in return for a cash advance\u00a0\u2013<\/em>\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\u00a0business loan<\/a>, 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\u00a0invoice factoring<\/a>. 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.

Your 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,\u00a0invoice factoring<\/a>\u00a0might be a more suitable option, because you wouldn\u2019t need to chase invoices yourself.
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Invoice discounting and invoice factoring are generally more widely available to established businesses rather than startups \u2013 you need to have a reliable turnover.<\/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:<\/p>\n