Invoice discounting is best suited to SMEs that are selling business-to-business on credit terms and where you issue invoices to your customers in arrears.
You should complete the job as usual and send the invoice to your customer. At this point, you would notify your invoice discounting company and they would advance a percentage of the invoice value e.g. 85% within 24 hours.
Here’s the main difference to invoice factoring: when the invoice is due for payment, you will contact your customer to ask for payment. Your customer will pay into a trust bank account which is in your name but operated by the factoring company.
Once your customer has paid the invoice, the initial advance will be repaid and the invoice discounting company will take their fees, then the remaining balance e.g. 15% will be made available to you.
Most invoice discounting facilities are confidential hence the term confidential invoice discounting which you may have heard. This means your customers aren’t aware that a lender is involved in the background.Contact Us
There are two main fees with invoice discounting: the service fee and the discount rate.
The service fee is charged as a percentage e.g. 1% of every invoice that you assign to an invoice discounting company. The rate itself is linked to several factors but one of the major ones is turnover; generally, higher turnover will command a lower service fee. On a like for like basis, invoice discounting tends to attract a lower service fee than invoice factoring as the lender isn’t undertaking credit control.
The discount rate should be viewed as an interest rate and it is charged based on the amount borrowed. For example, 3% over base rate on the balance. Again, the rate itself is linked to several risk associated factors.
There may be other fees associated with setting an invoice discounting facility up such as the arrangement fee, which is usually a percentage of the funding limit, and a survey or audit fee for the lender’s due diligence. Because the lender is less involved in this type of funding versus invoice factoring, there’s likely to be a regular requirement for audits so they can monitor your situation.Contact Us
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Lostock Office Park,
Ping Finance is a trading name of Ping Finance Limited which is registered in England and Wales under Company Number is 10973327, whose registered address is Ground Floor, Unit B Lostock Office Park, Lynstock Way, Lostock, Bolton, England, BL6 4SG. Ping Finance Limited is also registered with the Information Commissioner under Registration Number ZA447449.