Understanding Invoice Discounting

Invoice discounting is a finance solution available to businesses that allows for both coverage on cash flow shortages and smoother cash flow, generally. While it is a common type of cash flow finance, it has a lesser known reputation compared to other business finance products like “Business Loans”.

Explaining Invoice Discounting

Invoice Discounting (also commonly known as debtor finance, receivables discounting, invoice finance or invoice factoring) is a cash flow finance option that provides additional working capital based on a businesses outstanding Accounts receivables. Financial services and cash flow financiers, like Fifo Capital, provide additional capital to your business based on the value of your outstanding accounts receivables.. 

Invoice discounting is different to invoice factoring in a  number of ways, the main point being that it is a confidential method of cash flow financing. With factoring, your customers don’t necessarily need to know that you’re using a receivables discounting financier, conversely, factoring is typically disclosed to your clients.

How does Invoice Discounting work?

When you have a Fifo Capital receivables discounting facility, you can sync your accounts receivables invoices to the Fifo Capital system. We then review the invoices (it can be one, two or as many as you like), and then make an advance payment to you based on the total value of those receivables. The advance on your outstanding receivables financed upfront by Fifo Capital is up to 90% – with the remaining % (minus any fees) paid once the invoice has been paid by your client.

Invoice Discounting has been described as having access to an overdraft for your business. Here’s the process:

  • You sell goods/provide services to your customers as normal
  • You invoice your customers for those goods or services
  • The financier advances you the value of the invoices, minus a small percentage (upon validation of the invoice)
  • Your customers pay you as normal
  • Upon payment of those invoices, you repay the advanced amount (plus any agreed fees) back to the financier
  • The cycle can then be repeated, dependent on your business’ cash flow and working capital requirements

Who is Invoice Discounting best for?

Like debtor finance, Invoice Discounting is best for businesses who sell and trade with other businesses on credit terms. This type of business finance is not suitable for businesses who sell to the general public or businesses who collect payment upon invoicing in a “cash on delivery” type manner.

Why choose Fifo Capital for your business’ Invoice Discounting needs?

By completing the form below, you can request a call from one of our Business Finance Specialists. In this call, we’ll seek to understand how your business operates and what the most suitable type of business finance will be for your circumstance – whether it’s receivables discounting, supply chain finance, trade finance or even solutions we don’t offer – such as  a chattel mortgage or business loan.

Businesses aren’t cut from the same cloth, and neither are their working capital and financial positions. That’s why here at Fifo Capital, we create a bespoke solution for you that fits your business requirements. When you partner with Fifo Capital, you have the assurance that we’re by your side.

Complete the form below for a no-obligation, finance discovery call with our business Finance Specialists today.

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