Invoice Finance Blog

Business Blog

Posted on 3rd jan, 2012

Invoice discounting in focus

Introduction

Invoice discounting is a business finance facility that seems to be relativley unknown to many small and medium sized businesses throughout the UK a recent survey has shown.

Although many businesses were generally aware of invoice finance as a funding facility there was a lack of knowledge of the detail in relation to particular invoice finance products such as invoice discounting and invoice factoring.

Small and medium sized businesses still defer to their bank as the initial source of business funding and this is not always the best source. As more and more finance products enter the market it’s important that business owners and managers are made aware of the full range of funding options they have available to them.

Invoice finance in general is a funding option that shows continued growth in the business finance market as more and more businesses realise its versatility for funding working capital.

What is invoice discounting?

Invoice discounting is a business funding facility that advances funds of up to 90% of outstanding sales invoices. It is classed as a confidential facility as the borrower’s customers are not made aware that the facility is in place.

The facility is normally operated purely as a funding facility with the borrower maintaining management and control of their sales ledger. Most invoice finance companies do however provide a range of additional service options to include sales ledger management, credit control, credit checking facilities and bad debt insurance.

Invoice discounting is recognised as an effective way of funding working capital and has the benefit of allowing the funding facility to grow as sales grow.

Security is taken over the debtors book by the lender and so this still allows the business to operate other borrowing facilities. It can also be used as a refinancing method for management buy-outs and management buy-ins.

Who uses invoice discounting?

Invoice discounting is used by a wide range of small and medium sized businesses to finance working capital.

Although invoice finance in the form of factoring will generally be applicable to most businesses who sell to other businesses on credit, most invoice finance companies set a minimum threshold of turnover for invoice finance facilities as part of their lending criteria and the borrower will generally need to demonstrate a recognised system of credit management and control.

An example of an actual invoice finance facility in operation is the deal announced at the beginning of last month which saw The Royal Bank of Scotland make an invoice discounting facility available to the distribution company NWF Group.

This invoice discounting facility for NWF is part of a larger funding facility which consists of £44m invoice discounting, £10m of revolving credit and a £1m overdraft facility.

NWF has a variety of operations producing and distributing food, warehousing and distribution of oil diesel and petrol. The company employs almost 1000 staff and has a sales turnover in excess of £464m.

The finance facility will be used to fund organic growth and strategic acquisitions.

Summary

Invoice discounting is an effective and flexible method for funding working capital. It is secured on a company’s debtors book and can therefore be used in conjunction with other funding facilities.

The Invoice Finance Company are specialists in invoice discounting. To find out more about how a confidential invoice discounting facility will improve your cash flow simply call us on 0845 459 7504 and speak to one of our specialist advisors. If you found this article useful visit our website at www.invoice-finance-uk.co.uk and give us a ‘like’ .