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Invoice Discounting: Why and When?

Maintaining healthy cash flow is one of the big challenges for both small and medium businesses, and sometimes you just need to raise a sum of working capital quickly and flexibly in order to make the most out of opportunities presented, or else to cope with unexpected expenses. Invoice discounting is one way that many businesses should consider as a way to raise extra funds by using the assets and resources you already have within your business. But when – and why – should you business consider using invoice discounting?

Invoice discounting allows you to borrow against your sales ledger by releasing a percentage of the money owed to you through unpaid customer invoices. As such, its a great way to combat late payment if your business is being strangled by a lack of cash flow due to non-paying customers – a common problem. You can receive up to 90% of an invoice’s value through this process, meaning you can unlock sizeable sums of capital. Invoice discounting lets you stay in control of your credit collection so the third party lender does not deal directly with customers, ideal if you want to be discreet – this also means this form of invoice finance is best suited to medium sized businesses with a secure credit collection infrastructure already in place. Smaller businesses should look at factoring instead.

So, invoice discounting is a great way to combat late payment issues by maintaining healthy cash flow that is predictable and reliable. You can start planning ahead with a real idea about the funds you will be able to have in place, and you can also cope more easily with unexpected bills and expenses. As such, businesses should consider invoice finance as it is flexible, accessible and tailored to many of the problems SMEs today encounter – and with bank lending failing to keep up with SME demand due to the current economic strife, it could be that your business cannot afford to neglect its invoice finance options.

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