Invoice Discounting
Invoice Discounting is a financial service that allows businesses to unlock the cash tied up in their outstanding invoices. This service provides immediate access to up to 90% of your outstanding Invoices , improving cash flow and enabling businesses to meet their financial obligations without waiting for clients to pay their invoices.
Unlike Factoring, with Invoice Discounting the provider does not contact your customers. Responsibility for credit control remains with you and your business. Your customers will usually pay into a separate account known as a trust account.
When your customer pays, you will receive the remaining balance less any agreed fee.
*All credit profiles considered
How does Invoice Discounting Work?
- Create Invoice – You provide goods or services to your customer and issue an invoice.
- You submit the unpaid invoice to an invoice discounting provider – or bulk upload.
- Immediate Cash Advance: The finance provider advances you a percentage of the invoice value, typically between 70-90%
- You manage your own credit control
- Your customer pays the invoice on their usual terms into a trust account – bank account in your business name but controlled by the lender.
- Once the invoice is paid in full, the finance provider releases the remaining balance to you, less any pre agreed fee.
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Benefits of Invoice Discounting
- Improved Cash Flow: Receive immediate funds to cover expenses, invest in growth, or manage unexpected costs.
- It’s confidential – With invoice discounting, you can keep customer relationships intact and continue managing your collections.
- Flexible Funding: Financing scales with your sales, providing access to more funds as your business grows.
- Relies on creditworthiness of your customer
- Option to insure against risk of non payment
- Grows with your sales: As you invoice more, the funding available to you increases automatically.
Is Invoice Discounting right for your business?
With a wide and varied range of funding solutions and lenders, it can be difficult to understand which is the best option for your business. At Aim Financial Solutions, we will help you to understand which funding options are the best solution for your business and we will help you to secure the most competitive terms with the best lender for your circumstances. Based in Devon? Find out more about our business finance in Devon.
Ready to unlock your working capital? Contact us today to learn more about how invoice finance services can benefit your business.
Invoice discounting vs invoice factoring
Both release cash from your unpaid invoices. The main difference is who chases your customers for payment.
| Invoice discounting | Invoice factoring | |
|---|---|---|
| Who collects payment? | You do, through your own credit control | The lender runs your sales ledger and collects payment |
| Do customers know? | Usually not. Most facilities are confidential | Yes. Customers pay the lender directly |
| Best suited to | Established businesses with good credit control in place | Smaller or growing businesses that want help collecting payments |
| Cost | Usually lower, as the lender does less work | Usually higher, as the cost includes credit control |
If you only need to fund some invoices from time to time, selective invoice finance may suit you better.
What does invoice discounting cost?
Invoice discounting is usually made up of two main charges:
- Service fee: covers the running of the facility. It is usually a fixed monthly fee or a small percentage of your turnover.
- Discount fee: interest charged only on the money you draw, usually set as a margin over the Bank of England base rate.
Some facilities also include set-up or audit fees, a minimum annual fee, and optional bad debt protection. Facilities usually run for an agreed minimum term with a notice period.
These details vary a lot between lenders, and they make a real difference to the total cost. We set out every fee side by side before you sign, so you can compare offers like for like.
How much can you borrow?
Most lenders advance between 70% and 90% of approved invoices. How much you can actually draw also depends on:
- Who your customers are: lenders look at the credit strength of the businesses you invoice
- Concentration: if one customer makes up a large share of your sales ledger, lenders may cap how much they fund against that customer
- Older invoices: invoices well past their due date are usually excluded
- Disputes, credit notes and contra trading: these can reduce the funding available
These limits are where facilities differ most, and where an experienced broker can make the biggest difference to your available cash.
Who is it for?
Invoice discounting suits UK businesses that sell to other businesses on credit terms, for example:
- Manufacturers, wholesalers and distributors
- Recruitment and staffing agencies
- Haulage and logistics firms
- Construction and engineering contractors
- Business services and IT companies
What you will need
- An aged debtors and aged creditors report
- Your latest filed accounts and recent management accounts
- Recent business bank statements
- Sample invoices, and contracts or terms with your main customers
Already have a facility?
Many businesses stay with the same invoice finance provider for years without checking whether the facility still fits. Common problems include:
- Concentration limits that hold back funding against your biggest customer
- Fees that no longer reflect the size of your business
- A facility limit that has not kept pace with your growth
- Rigid collection targets that squeeze your cash flow
We can review your current facility against the market, explain your notice period and any exit costs, and manage a move to a new provider if it makes sense. Your customers need not notice the switch.
Invoice discounting FAQs
Will my customers know I am using invoice discounting?
Not usually. Most invoice discounting facilities are confidential, so you keep dealing with your customers as normal and they pay into an account in your business name.
What happens if a customer does not pay?
On most facilities you remain responsible for bad debts, known as recourse. You can usually add bad debt protection, which covers you if an approved customer becomes insolvent.
How long does it take to set up?
Once a lender has your information, they will usually review your sales ledger before making an offer. Many facilities are up and running within a few weeks.
Can I choose which invoices to fund?
Invoice discounting normally covers your whole sales ledger. If you want to fund individual invoices instead, look at selective invoice finance.
Will I need to give a personal guarantee?
Many lenders ask directors for a guarantee or indemnity, usually linked to the accuracy of the information you provide. We explain exactly what is being asked before you sign.
Can you help if my bank has said no?
Often, yes. Invoice discounting relies mainly on the strength of your customers, so it can be available when other lending is not.
Unlock the cash in your invoices. Let’s get started
Tell us about your business and we will come back with your options within one working day.