Invoice Discounting

Invoice discounting is much like factoring, except you collect payments of the invoices from your customers rather than the factoring company collecting payments.

Invoice discounting costs less than factoring because of this. After all, with factoring the company will run your sales ledger (saving you time and money of this process, especially if you employ sales ledger/credit control staff, but notifying customers of the fact you are borrowing against your debts). With invoice discounting you will retain control of your sales ledger, and therefore keep that fact confidential from your customers, but incur the time and cost of administering your sales ledger (ie. issuing statements, chasing and collecting payments).

With invoice discounting you need a turnover of £250,000 and may have to be a Limited Company rather than a Sole Trader. Factoring will often only require your business to be turning over £50,000 a year.

As you collect the monies with invoice-discounting, you will have to pay the money collected payments (that are owed to the invoice-discounting company) into a special trust account at your bank and notify the discounting company. They will pay you the balance minus their agreed fees and interest charges once the outstanding invoices have been paid into this account.

Ltd Companies
Ltd Companies: Budgeting-Cash Flow
Ltd Companies: Factoring Factsheet
Ltd Companies: Invoice Discounting
Ltd Companies: Improve the cash flow of your business

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