What Is Invoice Discounting?

If you are in business and are looking for a quick and easy way to raise money for your business look into invoice discounting. It is a great way of leveraging your invoices to improve your cash flow, or give you the cash to build your business sooner rather than later. Simply put invoice discounting is borrowing money using what your customers owe you as your collateral.

How Invoice Discounting Works

To use this great service you first need to find a firm who is willing to lend you money in this way. You tell them how much you want to borrow and tell them how much you have available in outstanding invoices. They carry out a quick calculation and let you know roughly how much they could lend you and how much it will cost. If you decide to go ahead, the finance firm will double check a few things like the credit worthiness of the customers who owe you money and arrange your loan accordingly. You raise your invoices as normal and when you are paid, pay off your loan. How much they can lend you depends on how much you are owed and how reliable your customers are likely to be at paying you. However, in many cases they can lend you up to 90% of the face value of each invoice.

Why Invoice Discounting Is Such a Good Idea

There are several reasons why raising money using invoice discounting makes sense. The first is that it is a form of finance, which is easy to arrange. There is very little form filling to do and you do not have to wait long to know whether you are going to get the money or not. When you borrow money from the banks, you often have to jump through a lot of hoops and wait an age for your money.

With invoice discounting how much you pay in interest varies. However, it need not be an expensive way of borrowing money. In some cases, it can be as cheap as borrowing money from a bank without all of the hassle.