Invoice discounting is a form of invoice financing that allows a business access to quick cash, with the unpaid invoices used as collateral. Businesses that invoice customers usually give them a number of days for the credit. Instead of waiting for the customer to pay the invoice, the business can borrow cash from an invoice financing company against the invoices.
Normally you will only be given 80-85 percent of the value of the invoice within 24-48 hours after you make your application, and then you will be given the remaining amount minus interest and the discounting fee according to your agreement.
The difference between invoice discounting and invoice factoring is that discounting is done on an invoice-by-invoice basis. Also, whereas in factoring the company (3rd party) take care of collecting the invoices fronting the cash and managing the sales lender, invoice discounting still leaves the business owner in control of the ledger and collecting finances.
When To Use Invoice Discounting For a Business
Invoice discounting is an ideal option for seasonal businesses, growing businesses and struggling businesses.
Seasonal businesses tend to place random pressure on their cash flow, which is not appropriate to solve with a loan.
Invoice discounting Australia can help minimize capital money for the business and enable things to continue running flawlessly.
Struggling businesses that need urgent cash to buy stock, pay off suppliers or make payroll can also find shed in invoice discounting. Since these businesses may sometimes get an opportunity to grow that is only hindered by finances, they can rely on the pockets of cash provided by invoice discounting to ensure consistent and continuous improvement.
Growing businesses can also benefit from the immediate cash availed through invoice discounting. The more a business grows the more it will make bigger customers who may request for longer payment terms. Although the business will be booming, cash will decline as more customers take things on credit. Invoice discounting is able to unlock the pockets of cash being help by the unpaid invoices, and release it to the next major investment or order.
Benefits of Invoice Discounting
Invoice discounting offers businesses a cash injection at the most competitive cash rates compared to other sources of finances. Unlike invoice factoring, this source of invoices leaves the business owner in charge of the sales ledges and also collecting the invoices. It’s is therefore a kind of discreet lending method and is ideal for businesses owner who want the source of their cash a secret to their customers.
The amount of money one can borrow with invoice discounting increases with the growth of the business. This eliminates the need to reapply for a
fast short term loans or to extend an overdraft. Better yet, ownership of an asset is not a requirement with invoice discounting since there is no collateral required for.
Like other sources f funding, a business can become overly dependent on invoice discounting which is not healthy for any business. All other things aside though, invoice discounting is one of the easiest and most convincing source of business loan.
Post new
My articles
Deals Facebook
Google plus
Deals Twitter