What is invoice discounting?

The problem it solves

You supply a large company. They take 60 days to pay - sometimes 90. Meanwhile your workers need wages this month, your supplier wants payment for raw material, and the next order needs funding. The money exists, it is simply not yours yet.

Most small businesses solve this by waiting, by delaying their own suppliers, or by borrowing expensively somewhere else. Invoice discounting solves it by turning the invoice into cash.

How it works

1. You raise an invoice on your buyer, as normal.
2. A financier advances you most of it - with us, 90% - usually within a day or two of the buyer confirming the invoice is genuine.
3. The rest is held back. That is called the retention, and it exists to absorb any deduction your buyer makes later.
4. Your buyer pays on the original due date, into the same account, through the same process. Nothing about their side changes.
5. When that payment lands, the retention is released to you, less the charges.

What it costs

Two things. A discount charge - which is interest on the money advanced, for the number of days until your buyer pays - and a processing fee. Because the charge runs by the day, a 30-day invoice costs roughly half what a 60-day one does.

Anyone quoting you “1.15% a month” is giving you a number you cannot compare against anything. Ask for the APR, which folds in every fee and annualises it. We show it on every quote without being asked, and every fee is published.

What it is not

• It is not a loan against your business. The financier is mainly assessing your buyer, not you. A small supplier to a large buyer often gets a better rate here than on an ordinary working capital loan.
• It is not selling your invoice. That is factoring, and it is a different thing with different consequences.
• It is not free money. You are paying to be paid early. Whether that is worth it depends on what you do with the cash.

What can go wrong

Three things, and it is worth knowing all three before you start.

• Your buyer pays less than the invoice. A credit note, a quality deduction, a short shipment. This is called dilution, and the shortfall comes out of your retention first.
• Your buyer pays late. The discount charge keeps running, so a late payment costs you more than you were quoted.
• Your buyer never pays. On standard invoice discounting you have to repay the advance. That is called recourse and it is the most important term in the whole arrangement.

There is a version where that last risk sits with the financier instead. It advances less and costs more, and whether it is worth the difference depends entirely on how much you trust your buyer.