There are many aspects of business that needs consideration. One of which is invoice discounting. You may or may not have heard about this term. Either way, you’re going to learn all about it in this article. So, continue reading now to learn more about what invoice discounting is and whether or not it’s the right finance facility for your business.
Before we delve deep into this, it’s important to familiarize finance facilities and what it’s all about. A finance facility, also known as invoice financing, is a way for business to borrow money against the amounts due from customers. It can help businesses improve cash flow, pay suppliers and employees, and reinvest in operations. Basically, it’s an essential aspect of doing business that you need to understand to keep your company going.
What is Invoice Discounting?
Invoice discounting is a type of invoice finance facility; wherein it allows business owners like you to leverage the value of their sales ledger. When you send an invoice to your customer, a portion of the total amount will become available from the lender. It will then provide a great source of working capital throughout a period – usually a month.
This one is quite similar to the factoring of the invoice. However, the difference is that your customer may not be aware that you have taken on cash flow finance. While all of this is taking place, you remain in control of the sales ledger, collecting payments and sending out reminders as usual. Doing so will allow you to keep your preferred style of communication, as well as customer service standard.
How Does It Work?
By now, you already have an idea of what invoice discount is in theory. But how does it work exactly? This section will explain just that.
Once work is completed or orders were fulfilled, you will send out invoices accordingly. The proportion of each invoice is transferred to your bank account once the lender receives a copy of said invoice. The cash will then be used to repay debt, pay bills, or payment as part of both a short-term and long-term business plan.
Sending out your invoices right after the completion of work is key to successful invoice discounting. The reason is that it allows for regular cash flow throughout the period. Once the agreed percentage of each invoice has been paid, you can then collect payment from your customers as per usual. The general percentage is around 80 to 90 percent.
Charges and fees are deducted from the remaining balance and either remitted or claimed by the lender. Keep in mind that charges should always be transparent and the fee structure made clear by the financer. However, it should be according to all the other terms of the invoice finance discount. This manner will help you budget out your funds effectively. At the same time, it will also ensure the best use of each cash input.
By following this pattern, you will be able to make the most of your invoice discount strategy. At the same time, it will also open a multitude of possibilities for your business.
Types of Invoice Discounting
There are three different types of invoice discounting: confidential invoice discounting, invoice discounting fund limits, and whole turnover invoice discounting.
Confidential Invoice Discounting
This type of invoice financing is usually arranged confidentially. That way, customers and suppliers won’t be aware of the business being advanced capital against sales invoices prior to receiving payment.
Invoice Discounting Fund Limits
Many companies do not assess individual debtors using invoice discounting. Instead, they protect themselves against the insolvency of debtors by relying on the wider number of customers. In addition, they also demand that only a certain percentage of a business’s sales ledger can be made up of one customer.
Just like spot invoice factoring, selective invoice discounting is where single receivables are sold to a third-party business. Invoice factoring facilities are traditionally whole-turnover, while the entire sales ledger of a business must flow through the factor.
Whole Turnover Invoice Discounting
Last but not least, a whole turnover invoice discounting is different from the two invoice discounting methods mentioned above. The difference is that in an entire turnover invoice discounting, every invoice must be sold in a whole turnover invoice facility, regardless of the need.
Is It Right for Your Business?
There are so many finance options that you can choose. But why choose invoice discounting? Is it even worth it? Does this type of finance invoice fit with your business strategy?
According to Real Business Rescue, Invoice discounting is the perfect fit for your business if your:
- Business has minimal bad debts.
- Credit control procedures are comprehensive and known to be effective.
- Customers have a minimum of 30 days in which they can pay.
- Customers are known for paying on time or within the payment period.
- Business meets with the minimum level of turnover required by the lender.
One of the primary considerations when deciding on an invoice finance option is whether or not you carry out credit management processes in-house. If you don’t, then invoice factoring invoice may be the more suitable financing option.
In addition, discounting services are also more widely available to established businesses rather than start-ups. By nature, they would not have any reliable turnover and credit management processes.
ReliaBills Can Help with your Invoice Discounting
At ReliaBills, our comprehensive invoicing system allows you to get an advance against your outstanding customer invoices. Whether it’s on a selective or whole ledger basis, ReliaBills has the features that will suit your needs.
In addition, you can also access the ReliaBills invoicing feature, which lets you create great-looking and professional invoices in a matter of a few clicks. Just select a template, enter the necessary details, wait a couple of seconds, and you’re all set!
Invoicing isn’t the only thing that we are known for. We also provide a consistent level of automation to make your invoicing smoother and more effective. Our recurring billing software will help automate your entire billing process from start to finish to ensure that you will get paid fast.
When you automate your entire billing system, you will get the payment from your clients automatically without waiting for them to make payment manually. In addition, thanks to recurring billing, you can save your client payment information and use it to collect payment from them regularly.
No more waiting and hoping to get paid. Just set it up, and ReliaBills will do the rest for you.
With ReliaBills, you can turn an estimate into an official invoice with a single click of a button. Managing the process of estimating project charges can be a pretty tiresome discussion with your client. But, you’ve worked your mind and soul to come up with a solid and reasonable estimate that you and your clients have come to agree upon. That’s why it’s important not to mess up.
Don’t wait for your customers to get frustrated because you failed to send an invoice right away. When everything is all set, and both parties have agreed, ReliaBills will make converting your estimates into invoices easier.
You can create and send invoices in seconds. Not only will your customers be impressed, but it will give them peace of mind knowing that the person handling their project means business.
Efficient Customer Data Management
To increase your customer base, you need to know more about your customers. With ReliaBills, you can know your customers better than ever. Using our recurring billing software, you can access AutoPay and store payment information securely.
Mail preferences will be 100% accurate, as well as account balances and other important details. Most of all, you can even customize your data fields for an even better view and understanding of your customers.
Some customers, especially if it’s a large purchase, prefer installment billing to settle their accounts. However, you may not know when you’ll need to send out an installment billing invoice. Fortunately, ReliaBills is equipped and ready to help you out in any way possible.
Close out big deals by giving your valued customer the payment flexibility they need. With installment billing, you’re offering another avenue for your clients to settle their accounts.
Speaking of payments, ReliaBills goes the extra mile when it comes to securing the bag for you and your company. That’s why our system comes with fully integrated payment solutions. No connections or gateways are needed! You can start accepting payments right away via emails, on your website, phone, and even in person.
Transactions are then deposited to your account once the payment is successful. Click here to learn more about ReliaBills’ easy payment system.
Remember how incredibly awkward it was when you called a client asking for their late payment? We do, too! That’s why we made sure that ReliaBills would do the call for you. With the ReliaBills Engagement Manager, you can create a custom collection plan that features personalized emails, text messages, snail-mail, and even late fees.
The system will automatically send a message or automated phone call to your customer if they fail to make payment. That way, all you need to do is sit back, relax, and wait for the payment to be made on your account. These are just a sneak peek of what ReliaBills has in store for you. Keep in mind that some of these features are only available in the PLUS plan, the premium version of ReliaBill’s basic free plan. It’s available for $24.95 per month and can be canceled anytime you want.
For more information about how ReliaBills can help with invoice discounting, send us an email at firstname.lastname@example.org or call our hotline at 1-877-932-4557.