Selective invoice discounting provides a way for business ventures to finance operations with cash that is received in the for of a loan from an unpaid invoice.
Here, the business will pay a fee to the finance provider to instantly receive a high percentage of the value of the invoice. After this point, the company will gain access to funds from currently unpaid sales, which will boost working capital and investment opportunities during a period where cash flow has taken a hit and business is slowing down.
You should be aware that with this funding method, the responsibility to issue the invoice and chase up late payments remains with the company.
How does selective invoice discounting work?
An organisation will settle on a choice that it needs to set some capital free from a certain unpaid invoice. It will then, at that point, allocate the invoice to a selective invoice discounting provider.
The provider will then approve the invoice and go to a form an agreement, complete with set terms and conditions. This will include a quote and terms for states of reimbursement of the credit. The loan quote will cover up to 95%, though in most cases it will stay around 70 to 85% of the worth of the invoice.
This lump sum will be advanced as a loan to the business in question.
Repayment of the loan, plus the lender’s fees will be completed as stated in the terms and conditions. The company will get the outstanding balance of the invoice whenever they have gotten full payment from the client. Keep in mind, as we mentioned before, it is dependent upon the business to pursue any outstanding debt.
Difference between selective invoice discounting and spot factoring?
Spot factoring works a little differently to selective invoice discounting, as here the company would sell an invoice to a third-party financial provider, in exchange for a percentage of its value. Factoring companies will be responsible for chasing customer payments in this situation, taking control of that aspect away from the partaking business.
So, as you can see there are key differences here. When it comes to selective invoice discounting, the company will select an unpaid invoice and gain cash in the form of a loan from the provider. This will be in exchange for a percentage of the overall invoice amount. A key difference here is that you will be fully responsible regarding chasing up payments and repaying the loan.
Advantages of selective invoice discounting
There are plenty of advantages to selective invoice discounting and they include:
- Strong availability, a wide range of businesses, including start-ups, can utilise them
- Money locked up in customer invoices can be released quickly
- No fear of any long-term contracts with your chosen provider
- Your cash flow will be increased instantly, giving you opportunities to grow as a business venture
- The company will have improved working capital and a reduced need for overdraft facilities
- No security is required, only an unpaid invoice
- The company selling products or services will retain control over sales receivables
- Both the company and the customer will benefit, due to the cash and credit facilities helping to maintain strong bonds
- Confidentiality is assured, as suppliers and customers do not need to become aware of finance being obtained against sales invoices
Disadvantages of selective invoice discounting
Here are some potential disadvantages to keep an eye out for:
- Only available to finance commercial invoices
- Stakeholders may not be impressed with this type of finance
- Other loan types may prove to be cheaper, so you will need to spend time making comparisons and conducting your research
- Discounting companies charge a few for the loan, so your profit margins will decrease
Could this form of finance help your business to succeed?
If Selective Invoice Discounting sounds like an ideal solution for you and your business venture, please get in touch with a member of our expert team today or submit an application online.
As one of the UK’s leading Asset Based Lending Providers, we compare a range of Invoice Factoring, Invoice Discounting and Selective Invoice Finance.
Thousands of businesses across the UK use invoice finance to leverage their unpaid receivables invoices to provide an instant cash injection into the business. Contact us and solve your cash flow problems today.
F.A.Q
Why choose selective invoice discounting?
Discounting receivables is a type of short-term financing that allows businesses to generate cash from their outstanding invoices. By selling their receivables at a discounted rate, businesses can receive a portion of the invoice value immediately, instead of waiting for the customer to make payment. This can be a helpful way to manage cash flow and keep operations running smoothly. There are two main types of receivable discounting: factoring and selective invoice discounting. With factoring, a business sells all of its receivables to a single lender at a discounted rate. With selective invoice discounting, businesses can choose which invoices they want to sell, and they can have multiple lenders. This can give businesses more flexibility in how they use the financing, and it can also help them get better terms. Selective invoice discounting can be a great option for businesses that need more flexibility and control over their financing. It can also be helpful for businesses that may not qualify for traditional financing, such as small businesses or startups. If you’re considering this type of financing for your business, be sure to shop around and compare lenders to get the best terms.
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.