How invoice discounting differs from factoring

Invoice Discounting offers the real cash flow benefits that factoring offers but without the need to lose control of your sales ledger and existing methods of credit control. It is usually (but not in every case) a confidential service (known as "C.I.D" - Confidential Invoice Discounting or "D.I.D."- Disclosed Invoice Discounting).
Factoring companies usually look for well-established profitable businesses with an effective and professional sales ledger administration system, before they are prepared to offer this form of facility. Generally turnover needs to be running at over £500k (and with many factors £1m) to qualify.
Service charges (often known as "commission charges") are usually much lower than for factoring for the obvious reason that the sales ledger administration is still your responsibility.
Discount Charges vary from case to case but are usually between 1.25% and 3% over base rate. Often a discounter will try to match or beat the rate currently being charged by the client's bankers.
This method of finance is becoming an increasingly popular method of financing mergers and acquisitions, MBOs and MBIs.
As mentioned earlier, Invoice Discounting is becoming increasingly used alongside stock finance, term loans and trade finance to offer a full asset based lending package. Many providers of invoice/receivables finance have brought a new, dynamic and creative set of solutions to age old problems - often with very attractive cost structures.

Invoice discounting and other asset finance

Asset Based Lending
Lloyds TSB Commercial Finance led the way in the development of asset based lending (ABL) in the UK and has over forty years experience of assisting businesses. Asset based lending is a flexible form of finance which allows businesses to secure funding against debtors (via invoice discounting and factoring), stock, plant and machinery and property. Lloyds TSB Commercial Finance is the only UK clearing bank to provide this full asset based approach.
We will work with you to identify your cash requirements and to structure a suitably flexible funding package to suit you. This could be to simply refinance your existing working capital, to fund periods of aggressive growth, to help finance a management buy-out or buy-in or indeed to fund an acquisition. We finance facilities from £250k to £100million and are able to arrange larger, syndicated facilities.
Invoice Discounting
With our invoice discounting product, you will receive advances of funds against outstanding sales invoices. Up to 90% of the value of your invoices can be paid out within 24 hours of raising them. Funds advanced under invoice discounting can be increased when a selection of assets is taken into consideration: We can provide funds against invoices, stock, plant and machinery, land and buildings. The exact mix of assets utilized will depend on your needs and the strength of security in the assets themselves.

Refinance - Check out refinance mortgage tips, why and when to refinance, refinancing faq and calculators and know if bad credit refinance is available.It gives you the chance to replace your current mortgage with a new loan having favorable rate and terms that you can afford to manage.

Invoice Discounting the Benefits?

Invoice discounting is a more flexible source of working capital than loans or bank overdrafts and a business is likely to accrue additional benefits, including:

1) Maximizing cash flow
Invoice discounting enables a business to raise up to 100% on outstanding invoices. An overdraft secured against invoices would only rise in the region of 50%.

2) Automatic credit lines
when entering into an invoice discounting agreement, the business negotiates an initial credit line, which then grows in step with the sales of the business. Bank finance, on the other hand, has to be continually renegotiated.

3) Retain control
under an invoice discounting agreement, you keep complete control over your customer relationships, free to manage your own ledgers and chase your own debts.

4) Total confidentiality
your customer will not be aware of the finance arrangement with the invoice discounting company.

Invoice Discounting - A Finance tool

How does invoice discounting work? Invoice discounting or so-called invoice factoring is a process in which the business owner sells unpaid invoices to a factoring company at a discount. This ensures that no business will face sudden financial crisis at the crucial point of time.Now a question may come in your mind – why does a factoring company give discount on your unpaid invoices? The discount that the factoring company provides when purchasing your invoices is their profit. On the other hand, receiving cash instantly for your invoices helps you meet emergency expenses, launch new projects, pay for costly advertisement for brand promotion, meet employees’ demand, maintain cash transaction with suppliers to get heavy discount and expand your business.

Invoice discounting, as it name implies, involves selling your invoices for immediate cash, at a small discount. Its value proposition is very simple. Are you willing discount between 1.5% to 6% from your invoices to get paid now? Consider that many business owners offer a 2% discount to businesses that pay within 10 days. So, invoice discounting offers a similar proposition. Of course, invoice discounting (or invoice factoring as it is also called) is not for every business. It works best when your profit margins are above 15% and if you use the accelerated funds to pay for business expenses or to pursue new business opportunities.