If used correctly, the discount on invoices can be a valuable tool for managing your company's cash flow. It helps reduce seasonal stress and cash flow gaps. An invoice discount company lends you the value of the invoices generated, minus a small percentage, after verifying that the invoices are valid. The discount on invoices is a good idea, as it provides you with an excellent investment option and, at the same time, protects against market volatility and earns high returns.
Small businesses struggle to control their billing cycles, which has a negative impact on working capital. The invoice discount allows business owners to obtain business loans quickly by using settled invoices as collateral. Discounting invoices is impossible if another lender already has general ownership of all of the company's assets as collateral for a different loan. In such situations, the other lender must waive their right to the guarantee of accounts receivable and instead occupy a junior position behind the financial company.
The biggest advantage of a discount on invoices is that it can significantly increase cash flow. Companies across the country often have problems with their cash balance, and most of the time this is not due to a shortage of income, but to the delay in paying bills by customers. Invoice financing offers unsecured business loans instead of your invoices and therefore poses no risk to your company's movable assets. GoCardless helps you automate payment collection, reducing the amount of administrative tasks your team must manage when processing invoices.
Remember that neither suppliers nor customers know about company loans against sales invoices. Overall, invoice discount services are best suited for companies that sell to other companies on credit terms and that bill more than £250,000 per year. Once you receive payment, it's time to repay the loan to the bill discount service, including an agreed fee (between 1% and 3% of the total bill amount) to cover costs, risk and interest. So, if you want to get paid quickly for your accounts receivable ledger, but you don't want your customers to know that you're using invoice finance products, invoice discounting is probably your best option.
Alternatively, you can choose to discount only certain specific invoices, which is called selective bill discounting. Even if the discount on bills is becoming popular to get cash quickly, it's a good idea to understand its advantages before considering applying for credit loans. Once you've decided to work with us, we'll contact your current invoice finance provider and arrange for the transfer of your invoices. InvoiceOwl offers you the perfect solution for quickly creating and sending invoices to your customer.
Keep in mind that for smaller companies it's not always possible to make selective discounts on invoices. It's also possible to have confidential invoice factoring, but it's generally less popular and more complex. Once the invoice verification is complete, commercial invoice discount companies provide you with the money as a loan from the invoices collected, minus a small percentage. The discount on bills tends to be a source of funding of last resort, due to the significant fees involved.