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Invoice Discounting Explained

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Cash flow problems are prevalent amongst businesses of all shapes and sizes. It is common practice in many industries to wait for between one to four months before expecting payment, but this can cause some real issues for your enterprise. Without a constant flow of capital to keep the wheels turning, the whole system can falter. Yet a solution can be hard to find: trying to set your own rules, and going against tradition, can be a sure fire way to alienate customers, sending them running into your competitors’ open arms.

This often leaves borrowing as your sole solution. However, an increasing number of large business owners are turning away from traditional lenders, and turning to invoice [GT1] discounting from companies founded through Touch Financial instead…

What is Invoice Discounting?

Invoice discounting is an easy concept to understand, very similar in theory to its sister, invoice factoring. The way it works is simple: a financier provides you with immediate access to the cash tied up in your unpaid invoices. Essentially, this means that you’re taking money from a pot you know you’ll soon be able to dip into, as opposed to borrowing it in the traditional sense.

How Does It Work?

Invoice discounting can easily be split into a four-step process…

Step One

A customer purchases items from you and you raise an invoice on this, containing details of how much is owed and when repayment is due.

Step Two

Your invoice financier takes account of this invoice, and advances you between 90 and 100 per cent of the total sum. This is usually deposited in your bank account within 24 hours of its receipt.

Step Three

You are able to use the capital advanced to you to cover any costs you’ve incurred, pay staff and suppliers, and so on.

Step Four

Once your invoice falls due, payment is sent from your customer to the lender, without the former having any idea of this new middleman. Any money that was not advanced to you is then forwarded across, minus any prearranged fees.

Could Invoice Factoring [GT2] Help You?

So, could invoice factoring [GT3] help your endeavour? In many cases, the answer is a resounding ‘yes’. It offers an ideal solution for any sizeable business struggling with cash flow problems, offering a secure source of capital, low risks, and lender anonymity. If you’re looking for a low-key lending solution to help keep your business ticking, then it could be the perfect option for you.

 

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