Invoice discounting brokers are used by businesses of all sizes to get hold of money that is tied up in invoices. It really is as simple as it sounds, the steps are as follows:
- The business creates an invoice for a client or customer
- The invoice discounting broker pays a percentage of the invoice to the business within 24 hours
- The money is sent to the business and they are free to use the cash as required in the business, perhaps to pay bills, staff or operation costs
- Once the invoice is cleared by your customer the broker takes the money the paid to you upfront plus fees and the rest goes to your business
Sounds simple and it really is, but it’s important to work out if using invoice discounting brokers is the right choice for your business. The more information you have on this type of business funding the better equipped you’ll be to make the right decision.
What is Invoice Discounting?
Invoice discounting brokers provide a service that provides businesses with an easy way of getting hold of funds that are currently tied up in invoices. The finance comes from a set percentage of the invoices you choose, often up to 90% of the total owed on the invoice. That equity is available within 24 hours of the invoice being raised with a client, providing instant cash without the long delay. The remaining amount that is left of the invoice is released to your business, minus any fees, once the client clears the payment.
How Does Invoice Discounting Differ from Invoice Factoring?
Invoice discounting brokers often provide a very similar service to businesses called invoice factoring. Invoice factoring is very similar to invoice discounting, but there are some differences that separate the two. With invoice discounting, the management and handling of credit control and ledger management remains with the business and isn’t handled by the broker.
Invoice factoring differs as the management of credit control and ledgers is no longer the responsibility of the business. The broker will take over, allowing the business the freedom to concentrate on business at hand and leave debt collection and other processes in the hands of the finance provider. It’s a good system for those looking to relive themselves of such jobs. However, it does mean clients will be aware of the funding that is taking place.
Businesses looking to remain in control of their own credit matters should consider invoice discounting. Not only does credit and ledger management remain in-house, the funding arrangement with the invoice discounting broker remains private. Your funding isn’t revealed to your customers and any communication that takes place is held between your business and your customers. No third parties are involved.
Peace of Mind
You can give yourself a layer of added stability and peace of mind by adding bad debtor protection. The bad debtor protection is available in both the invoice discounting and invoice factoring. This is a great way of protecting your business against bad debts and taking away any pressures or concerns you may have should there be problems with the invoice you have funded the business against.
Advantages of Using an Invoice Discounting Broker
There are several benefits of using an invoice discounting broker, which is why this type of funding has increased in popularity in recent years. Here are the key advantages:
- The process is fast and will result in a fast cash injection into the business. Businesses can get money within 24 hours and are not forced to wait for the invoice clearing date.
- The cash that is funded by the invoice discounting broker can be used to keep operations working or cover any bills that require clearing.
- Businesses don’t need to inform their clients of the funding arrangement, it’s highly confidential.
- Communications with clients remains the responsibility of the business and not the invoice discounting broker. Your customers won’t notice anything different about your operations.
- Use the funding to maintain business as finance future growth.
Is Invoice Discounting Right for Your Business?
Would your business benefit from invoice discounting? This is a question that only you can answer once you have considered all the information. You must consider the requirements of your business, your business goals and the current systems you have in place.
Learn more about how invoice discounting brokers can fund your business by getting in touch with Simply Factoring Brokers. Ask about the suitability of invoice discounting for your business and enquire about alternatives to find the right fit for your current needs. Brokers will provide you with the information you require to ensure you do the best thing for your business. There isn’t a one size fits all when it comes to business funding.
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