The Benefits of Invoice Discounting to Your Business

Invoice financing is not a new idea, but it has become an increasingly popular borrowing option over the past two decades. Ideally suited to remedying cash flow problems, the financial crisis has seen its prevalence boom, with more and more businesses finding that available capital simply doesn’t match real business performance. 

Invoice Discounting to Your Business
So what is invoice financing? Invoice financing is an umbrella terms used to describe two broadly similar methodologies: invoice factoring and invoice discounting. These borrowing options both work by levying capital from a third party provider, which is secured against a business’ invoice ledger. Unlike traditional borrowing, however, they allow you to borrow money against money that you’ve already earned. This capital is made available almost immediately, so that companies don’t have to wait for customers to settle their debts before ploughing their profits back into their business. 

It is the latter methodology - invoice discounting - that is most popular amongst larger enterprises. But how, exactly, could it help you? 

It Improves Cash Flow

The main attraction of invoice discounting lies in its primary function: to improve cash flow. Many businesses find that cash flow simply doesn’t match performance, with a sizeable lag between earning money and being able to access it. Although immediate payment offers one answer to this problem, insisting on this can cause some companies to lose business. Factoring offers the perfect solution; in the space of 24 hours, around 90 per cent of the total invoice value will usually be made available by invoice discounting providers like Touch Financial

It’s Low Risk

Although it differs from traditional borrowing options in a number of ways, invoice discounting is still a means of securing finance, one possibility amongst many to consider. When it comes to weighing up its advantages, one of the greatest is the low risk attached to it; you’re borrowing money against capital that you’re already owed, as opposed to profits that you’re only hoping to make. As a result, your chances of accumulating substantial debts in a bid to expand your company are absolutely minimal.  

Third Party Involvement in Your Business is Limited

One of the main differences between invoice discounting and its factoring counterpart lies in the involvement of financial providers in your business. Discounting lenders are much more hands off, leaving responsibility for your invoice portfolio in your hands. It will be down to you to chase payments, and all client inter-facing will be taken care of by you and your employees. This means that customers needn’t know how your business is funded, and that there is no risk of your reputation for positive customer service being negatively impacted by anyone else.    

If you’re looking for a solution to your business’ cash flow problems, could invoice discounting be the perfect option for you?

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