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Invoice discounting is a type of invoice finance that’s widely used by UK businesses. It allows you to raise finance against your sales ledger on an ongoing basis so you can release the funds tied up in unpaid customer invoices. It can provide a welcome cash flow injection that helps you invest in your business, plan ahead with confidence and ride out seasonal fluctuations.
Are you fed up of waiting 30, 60 or 90 days for your customers to pay their invoices? At UK Business Finance, we can help. We search the whole market to find you the best invoice discounting deals that meet the needs of your business. There are no fees to pay or exclusivity contracts to sign, and we can even complete the finance applications on your behalf.
In an invoice discounting agreement, you effectively sell your customer invoices to a lender who pays you a cash advance based on a percentage of the invoice’s value - usually around 80% to 90%. You typically receive the money within 48 hours to give you a welcome cash flow boost. Once your customer has paid the invoice, the finance provider hands you the remaining balance minus their fee.
Invoice discounting is very similar to factoring. The key difference is that with invoice discounting, your customer will not necessarily know that you’re using a third-party finance provider. That’s because you retain control of the collection of payments and communicate with your customers as normal. The downside is that you still have to chase invoices yourself. The upside is that you can protect the good relationships you have with your customers.
Invoice discounting is a flexible and fast method of finance that gives you more control over your cash flow. Here are some of the benefits:
Invoice discounting tends to be used by established businesses with reliable turnover and robust credit control processes. It could be a good fit if:
There are also some downsides to consider. Invoice discounting will reduce your profit margin, as a small percentage of every customer invoice is paid to the finance provider. It can also be difficult to access as a small business, and if a provider is willing to lend to you, it will typically be at a higher fee.
As an independent commercial finance broker, we can help you find the most suitable invoice discounting product and provider at the best rates. Use our tool to request a quote or get in touch to discuss your business’s requirements with our team.
Further Reading
We work across a wide range of sectors throughout the UK, providing specialist advice to each sector.
Why use a commercial finance broker?
A commercial finance broker plays an important role for businesses looking for funding. They can source the most suitable types of finance using a whole-of-market search strategy whilst also accessing the best deals and lenders.
What are cash flow forecasts and why are these important when obtaining business funding?
Operating with positive cash flow helps your business to pay its bills, conduct day-to-day trade with minimal issues, and plan confidently for the months and years ahead. But how do you know that there will be sufficient cash available when it’s needed?
Good debt vs Bad debt
Managed well, debt can improve your credit rating, enable expansion, and stabilise cash flow. It’s the backbone of growth but with so many different types of borrowing now available, it’s important for your business to carry ‘good debt’ rather than ‘bad debt.’
How to best prepare my company for a finance application
When preparing your company for a finance application, it’s key to present the business in its best light whilst also providing realistic projections, your plans for the funding, and how it will help the business grow.