Invoice Discounting: What It Is, How It Works, and Why You Need It

 

Introduction

Invoice discounting is a simple way for businesses to get cash today. It's a fact of life that most companies have expenses they need to pay now but can't easily afford—they need working capital. Invoice financing allows companies with slow-moving inventory or other assets (such as real estate, equipment, or intellectual property) to access the cash those items represent immediately. This quick access to funds allows them the ability to manage their accounts payable and invest in future growth opportunities.

What is invoice discounting?

Invoice discounting is a form of financing that allows businesses to get funding for their invoices before they are paid. Most commonly, it's used in the construction industry and manufacturing industries (think auto manufacturers or food processing plants).

In this process, an invoice discounting company signs up to receive your invoices – or those of its other clients –and then pays you immediately after receiving them. The company also charges you a percentage as an interest rate on top of what you're owed by your client—that's how it makes money off this service.

How does invoice discounting work?

When a company sells goods or services to another company, the customer is expected to pay the invoice within 30 days. If they don't pay the invoice within 30 days, it's considered past due and may be charged interest on top of what has already been paid. The supplier will then have to wait for payment for an additional 30-60 days before receiving their money from the customer. This process can take up to 90 days from when an invoice was sent out by the supplier and received by its intended recipient, which means that suppliers are often waiting 60-120 days before they receive payment from customers (the time period varies based on contract agreements).

With invoice discounting, you can get your cash faster! Before we explain how this works let's look at how invoicing works in general:

Who can use invoice discounting?

Invoice discounting can be a great solution for companies of all sizes and industries—but it’s particularly beneficial to those in the manufacturing and service industries.

If your company has a high volume of invoices, invoice discounting might be right for you. This includes companies in the following industries:

·         Manufacturing

·         Service (like retail)

If you’re looking to increase your cash flow or make payments on time, invoice discounting may be the answer.

Why should I consider invoice discounting?

Invoice discounting can be a great way to get the cash you need when you need it. Here are three reasons why invoice discounting is the right choice for your business:

·         You don’t have to wait for payment. Invoice discounting provides an immediate, short-term solution that lets you borrow money against unpaid invoices, giving you more control over your cash flow while keeping your customers happy.

·         You don’t have to go through the trouble of applying for a loan. With invoice financing, there are no forms or checks required—simply send in an application and receive funding within 24 hours after approval!

·         No risk of losing customers with late payments (and big penalties). Suppose one of your clients pays late and causes your business harm. In that case, they may lose trust in their relationship with you—but with invoice financing from [enter company here], there’s no risk of this happening because we can help them pay faster and keep your reputation intact!

Conclusion

Invoice discounting is one of the most popular ways for small businesses to get funding. It gives you access to a large amount of capital quickly and easily, without having to go through the full application process. You can use it for any number of reasons: paying off debts, purchasing inventory or equipment, making improvements on your property or business. Invoice discounting also has many benefits over other forms of financing because it doesn't require collateral or credit checks; all that's needed is collateral-free invoice endorsement from your suppliers who have already approved you as a customer!