What is Invoice Discounting?

Invoice Discounting | Trade Finance Global

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Invoice Discounting | The 2023 Guide for Importers and Exporters

Invoice discounting allows a company to receive funds soon after sending out an invoice and can be done on a batch or single invoice basis. This allows capital to be used in the business for general cash flow or expansion purposes. It also removes pressure from the company in looking for alternative types of funding and having additional assets to offer as security for these facilities.

What is invoice discounting?

Invoice discounting can be used for many reasons. It is usually the chosen form of financing where an established business is growing and has a specific customer or a number of invoices that they would like to raise finance against. However, this may not be on all their customer accounts and could not be on all invoices in relation to one specific customer.

Invoice discounting is relevant where a business has a number of customers and invoices are raised to those customers. Typical businesses have payment terms of 30, 60, 90 or 120 days; based on what is agreed. The customer will then have a certain amount of time to pay a company for an invoice that is issued. In the event that a master invoice discounting facility is entered into (this governs the process), then it allows the company to discount invoices with specific customers and up to the maximum value levels that are agreed.

Diagram - How does invoice discounting work?

Receivables purchase agreement

Benefits of invoice discounting

It is much simpler than a standard business loan, in terms of process and security offered. A business loan may require assets and other elements as security, but an invoice discounting facility will concentrate on the value of the invoice and sometimes the insurance backing of that facility. Invoices can also be discounted on a confidential basis, depending on what is agreed with funder. Therefore, the customer would not know that there is a third party funder who is involved. A business will also have the flexibility of deciding when they discount invoices, which can match up with their funding requirements.

Download our invoice discounting infographic

Want to find out more about invoice finance? Check out our handy infographic – a comprehensive guide which defines invoice discounting, factoring, as well as the differences between the two!

Invoice finance guide Summary Invoice Discounting Factoring Asset Based Finance continues to grow Why Use TFG A project by TFG

dsv tracking furniture

Case study: Wholesaler of furnished goods

Case study: Wholesaler of furnished goods

A furniture wholesaler sells to high street chain stores every month and sends out their invoices monthly. A couple of their customers have negotiated longer payment terms of 90 days. The company decides that they would like to receive finance against these invoices, so that they can re-invest the money into employing more sales people and stock in order to bring on new accounts. The funder agrees that they will advance 85% of the value of these invoices to the company. When payment is received, the funder will be paid their fees and the customer receives the remaining funds.

Receivables Finance Insights

Trade Finance Global, in collaboration with FCI, announces a forthcoming livestream, “Desert Dialogues: Pulse Check on Receivables Finance.” The livestream is an integral part of FCI’s 55th Annual Meeting in Marrakech.The annual meeting is a focal point in the industry calendar, covering a spectrum of topics from the launch of the UNIDROIT Factoring Model Law to the rise of receivables exchanges and marketplaces.
Cash is king, and helping suppliers may be in buyers’ best interest High-interest rates and elevated inflation are pressing suppliers to reduce their cash-conversion cycles
receivables finance trade finance Is trade and receivables finance the new home for private credit? The financial landscape has undergone a seismic shift in recent years. From zero or negative interest rates to the COVID-19 pandemic and geopolitical tensions, the world has seen it all. Amidst this backdrop, the role of private credit has evolved significantly. 
Bridging the trade finance gap Absa's digital journey in Africa Bridging the trade finance gap: Absa’s digital journey in Africa In the wake of the pandemic, the global economy has seen a confluence of challenges, including geopolitical risks, interest rate changes, and commodity price fluctuations.
supply chains The evolution of Supply Chain Finance: From banks to distribution Over the past several months, corporates have increasingly been asking for details on a bank’s distribution capabilities when deciding which financial firm to work with. 
FCI Annual Report Breaking: FCI releases World Factoring Statistics survey, reports double-digit growth FCI, the global representative body for factoring and financing of open account domestic and international trade receivables, has released their annual World Factoring Statistics report.

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About the Author

Nikhil Patel is a journalist at Trade Finance Global, covering commodity finance markets, trade technology, and cash / treasury management.

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