Confidential Invoice Discounting or a CID Facility as sometimes it is referred to is product is designed for businesses who offer trade terms to their customers.
This financial business product is known simply as invoice discounting, confidential invoice discounting is a popular method for improving cash flow for businesses who have payments tied up in 30-120 day invoices.
Using this method of invoice finance, confidentiality is show within your business, this means no disclosure to your customers that you are financing your invoices.
The control of your sales ledger collections is also retained within house and you are responsible for sending out your own reminders for payment.
What is Confidential Invoice Discounting?
Confidential invoice discounting is a type of invoice financing that can be arranged confidentially, by using this type of facility your customers and suppliers are unaware that the business is being advanced capital against sales invoices before payment is received.
Invoice factoring and invoice discounting both help companies expand and grow and overcome cashflow issues faced with slow paying customers. Both these asset-based working capital solutions allow businesses to get advances on cash they are due from customers, rather than having to wait for those customers to pay.
Asset based lending products such as confidential Invoice discounting and factoring have become a major source of working capital finance since the restriction of bank financing. Confidential Invoice Discounting is more attractive to a bank because it relies on the value of the invoice due from the debtor, as such your customer will not know this financial product is being used as it is confidential.
What is the meaning of invoice discounting?
In this article, we’re talking about confidential invoice discounting. This is one of the two types of invoice finance, and as the name suggests, is an agreement that is kept confidential between the business in question and the finance provider.
Clients and customers pay the invoiced money into an account as normal, but they are not made aware that a finance provider is involved.
Is Confidential Invoice Discounting Right For My Business
Invoice Discounting finance products are designed for companies who offer trade terms to their customers but want to remain confidential. Your company needs to be well established with a great credit collections team in place as the discounter has less direct involvement over how you collect your debts.
The lender will want to see an exceptional audit report of past collections. Security for the lend is usually placed on the invoices so a debenture is placed on the Limited Company.
How does confidential invoice discounting work?
- Complete your customer’s order as normal
- Once completed, raise your invoice as usual, and send it on to your customer
- Send a copy of the invoice to the discounting partner.
- Processing and verify with your customer will take place.
- 90% of the invoice value will be forwarded to you within 24 hours. Paid directly into your bank account
- Your customer pays the into a new business bank account in your company name.
- This is a client business account in your name ensuring confidentiality.
- The discounting lender will forward the balance to you less any prearranged fees
Making financial decisions is never easy, we have outlined the advantages and the disadvantages of invoice discounting so that you can make an informed choice.
Benefits of confidential invoice discounting?
Businesses choose confidential invoice discounting to finance their ventures as it has numerous potential benefits. They include the following:
Boosting Cash Flow
Benefits of this are mainly in relation to cash flow, which means that invoice finance is not designed for people who need funds that they can’t pay back until a later date. It’s for businesses who are operating well, but can’t realise the cash they’re owed quickly enough. The upshot is that it allows these businesses to be more agile.
They can create cash quickly by supplying goods and services, and then this can be used for everything from new investments and opportunities, to normal monthly expenses. Cash flow is one of the biggest headaches for SMEs, even successful ones, so there’s little surprise that invoice finance is popular for a lot of businesses.
Maintaining Customer Relationships
This is especially beneficial for businesses who want or need to introduce invoice finance as part of their accounting, but don’t want any of their relationships to change. Some customers for instance might change their opinions of the business if they know an invoice finance provider is being used. In addition, other forms of finance might mean that the finance provider takes control of collections activity, but again, established businesses are likely to have this well under control.
Naturally, there is a cost associated with invoice discounting – there’s usually a service fee that covers the administration of the facility, and then a small finance fee for each invoice. This finance cost is paid when the customer pays the money they owe and the invoice is settled, and is calculated as interest.
Confidential Invoice Discounting Rates
the rates for confidential invoice discounting change between lender to lender and also it is dependent on a number of factors.Turnover is one major factor to achieve a good confidential invoice discounting rate, the more you borrow, the cheaper it is. As confidential discounting requires a turnover of at least £500,000 the rates and charges will be considerably cheaper than factoring.
Because you employ your own credit collections team with total control over your debtors, invoice discounting can be a very cost effective way of funding your business. The cost of money drawn against your sales ledger would be charged at between 1.5-2% + bank base rate, in addition you would pay a small administration charge of around 0.1%, subject to a minimum charge of £5000 per annum.
A few benefits with confidential invoice discounting, apart from the immediate cash flow boost, is the ability to retain the credit control function within your organisation. However, because of this the funding provider will offer a lesser percentage of cash upfront say 80% instead of 95% compared to invoice factoring. This is down to the discounting provider is at a greater risk due to not having control of the collections or making contact with your clients.
Confidential invoice discounting agreement
A confidential invoice discounting agreement is an contract between the lender and borrower. The contractual length can be between 3 months up-to 12 months.
To get an agreement in place, the turnaround time will be between 7 – 14 working days, but this is dependent on the ability of the information that is requested being provided by the borrower.
A quick review of Confidential Discounting:
- You are responsible for chasing your unpaid invoices yourself
- Your outstanding invoices are sold to the discounting provider
- The facility is confidential, so your customers won’t know you’ve financed the invoices
- The Confidential discounting provider may insist on credit insurance to minimise your exposure should a debtor fail
- If your customer is late paying it won’t affect your cash flow
- Your customer would normally pay into a “client account” controlled by the lender
Why Obtain A CID Facility?
Cash is King
If you are a B2B company that invoices in arrears, then receiving advanced funds against unpaid invoices can help your business cover costs. This will help your business to keep its daily operations running. Depending on the businesses financial circumstances and its objectives, this advance cash flow injection could also be used to expansion and growth the venture.
Debtors’ payment schedules can easily sink a company if not kept in check! you could end up waiting 30, 60, 90 or even 120 days for payment. A Confidential Invoice Discounting facility will ensure that the business is paid for products or services supplied in advance. The funds against and invoice is available within 24 hours of the business issuing that invoice.
A Confidential Invoice Discounting facility suits businesses that have the resources to retain credit control, as they are in charge of their own sales ledger.
As a Confidential Invoice Discounting facility is funded against a business’s sales ledger, the funding received by the business can expand as its sales grow.
Get a discounting quotation today
One of the best benefits of dealing with independent invoice discounting brokers that they can source you a great deal. this will save you time and ensure you get the right deal.
If the deal is stacked correctly then it will be painless and cost effective for your business. if you feel you could use a CID Facility for your business simply complete the online enquiry form.
Read more: What is disclosed invoice discounting
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.