Receivables Discounting | What is Receivables Finance? | 2024 Guide

    • Themes
      • Trade

        Do you want to know how access to trade finance can increase your cross-border imports and exports? Explore our Trade Finance hub for practical tools.

        Treasury

        Are you a treasury or operations manager looking to mitigate the risks and efficiently manage your business’ cash flow? If so, check out our Treasury Management hub.

        Payments

        Whether you want updates from infrastructure support to cross-border transactions or clearing house operations to processing techniques, you can find all on our Payments hub.

        Letters of Credit

        Ready to to increase your imports / exports to guarantee the payment and delivery of goods? Find out more about LCs here.

        Shipping & Logistics

        Whether you’re transporting goods, or learning about supply chains, warehousing, transportation and packaging, we’ve got you covered.

        Incoterms

        Need to know which International Commerce Term is right for your needs? Explore our curated guides from shipping expert Bob Ronai.

        Sustainability

        Prioritising sustainable supply chains? Building inclusive trade? Working towards the UN’s 2030 SDGs? Read the latest on global sustainable standards vs green-washing here.

        Customs

        Heading into international markets? From the correct documentation to standardisation, here’s what you need to know for a streamlined customs clearance process.

        TradeTech

        TradeTech is rapidly evolving to help reduce some of the biggest challenges when it comes to trade. Keep up with these innovations here.

    •  

       

    • News & Insights
      • News

        The latest in Trade, Treasury & Payments - stay up to date on all the changes across the globe.

        Magazines

        The issues feature experts across the industry on the latest developments with specific themed and regional editions.

        Articles

        Insights by the industry, for the industry. These include thought leadership pieces, interview write ups and Q&As.

        Guides

        Working closely with industry experts and trade practitioners we provide inclusive educational guides to improve your technical knowledge and expertise in global trade.

        Research & Data

        We undertake qualitative and quantitative research across various verticals in trade, as well as create reports with industry association partners to provide in-depth analysis.

        Trade Finance Talks

        Subscribe to our market-leading updates on trade, treasury & payments. Join the TFG community of 160k+ monthly readers for unrivalled access in your inbox.

    • Media
      • Podcasts

        Welcome to Trade Finance Talks! On our series we hear from global experts in trade, treasury & payments.

        Shorts

        Enjoy our bite-sized video content for insights on-the-go with our short VoxPop & summary series.

        Webinars

        Experience the true nature of the TFG community through panel discussions on the latest developments - engage with questions.

        Videos

        Join us as we interview leaders in international trade, treasury, payments and more! Watch and learn.

    • Events
      • Partner Conferences

        We partner with industry conferences around the world to ensure that you don’t miss out on any event; in person or online, add to your calendar now.

        Women in Trade, Treasury & Payments

        Get involved in our most important campaign of the year, celebrating the achievements of women in our industry and promoting gender equity and equality.

        Awards

        Our excellence awards in trade, treasury, and payments are like no other. You can't sponsor them, and they're independently judged. They are the most sought-after industry accolades.

        Online Events

        Join our virtual webinars and community events. Catch up on-demand, right here on TFG.

    • Editions
    • Finance Products
      • Trade Finance

        Trade finance is a tool that can be used to unlock capital from a company’s existing stock, receivables, or purchase orders. Explore our hub for more.

        Invoice Finance

        A common form of business finance where funds are advanced against unpaid invoices prior to customer payment

        Supply Chain Finance

        Also known as SCF, this is a cash flow solution which helps businesses free up working capital trapped in global supply chains.

        Bills of Lading

        BoL, BL or B/L, is a legal document that provides multiple functions to make shipping more secure.

        Letters of Credit

        A payment instrument where the issuing bank guarantees payment to the seller on behalf of the buyer, provided the seller meets the specified terms and conditions.

        Stock Finance

        The release of working capital from stock, through lenders purchasing stock from a seller on behalf of the buyer.

        Factoring

        This allows a business to grow and unlock cash that is tied up in future income

        Receivables Finance

        A tool that businesses can use to free up working capital which is tied up in unpaid invoices.

        Purchase Order Finance

        This is commonly used for trading businesses that buy and sell; having suppliers and end buyers

    •  

       

    • Sectors
    • Case Studies
      • Informing today's market

        Financing tomorrow's trade

        Soft Commodities Trader

        Due to increased sales, a soft commodity trader required a receivables purchase facility for one of their large customers - purchased from Africa and sold to the US.

        Metals Trader

        Purchasing commodities from Africa, the US, and Europe and selling to Europe, a metals trader required a receivables finance facility for a book of their receivables/customers.

        Energy Trading Group

        An energy group, selling mainly into Europe, desired a receivables purchase facility to discount names, where they had increased sales and concentration.

        Clothing company

        Rather than waiting 90 days until payment was made, the company wanted to pay suppliers on the day that the title to goods transferred to them, meaning it could expand its range of suppliers and receive supplier discounts.

        Get Trade Finance

        Informing Today’s Market, Financing tomorrow’s Trade.

    • Get Trade Finance
  • About Us
  • Talk To Us

What is Receivables Discounting?

Last updated on 22 Aug 2024
09 Dec 2016 . 2 min read

The above Supply Chain Finance techniques have been defined by the Global Supply Chain Finance Forum (BAFT, EBA, FCI, ICC and ITFA)

Mark Abrams
Mark heads up the trade finance offering at TFG where his team focuses on bringing in alternative structured finance to international trading companies.

Access trade, receivables and supply chain finance

We assist companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.

Get Started

Our latest factoring and credit insurance whitepaper

FCI EDITION FACTORING AND CREDIT INSURANCE
Download

Contents

    What is Receivables Discounting?

    Receivables discounting is a type of asset financing which involves obtaining a short term loan against accounts receivable. It is first important to understand what a receivable looks like and the reason that this type of funding is subsequently used.

    Receivables discounting can be used for many reasons. This type of financing is frequently used to help growing businesses access capital secured against invoices. Receivables discounting can help prevent companies running into working capital complications.

    What is a receivable and what is receivables discounting?

    A receivable is a promise of future incoming value into a company. This may be monetary worth or something else of capital worth. It is important to note that it is a future defined value flowing to the business and is not received at the point that a transaction is made. At its most basic form, this will be an invoice that is submitted to an end buyer when a product is purchased. The reason that the goods are not paid for on purchase is due to the end buyer being provided with credit days from the supplier. This attracts buyers to work with sellers, as they will have a period of time in which to provide payment. The reasons for these ‘credit terms’ may be varied; it will assist with the cash flow of the ultimate buyer, will allow an element of sell through of the stock prior to payment and will permit flexibility of the purchaser. This may also be a deciding factor for the purchaser; of who the supplier will be.

    The concept of having credit terms is used to attract the end buyer. In the event that no credit terms are provided; payment is received at the point of delivery or pick up of the product.

    Diagram – Receivables Discounting

    Why is providing credit terms a problem?

    The cash flow of a business is of central importance, as it allows expansion and forward momentum. In order to grow, there is always a need for finance and so providing long term credit days can make expansion a difficult process. In effect, providing credit terms may starve the business of finance.

    How can receivables discounting work to provide credit terms to a business?

    Receivables discounting (also known as receivables factoring) is a mechanism in which finance is provided against receivables; such as invoices. The typical way this will happen is for 75-90% of funding to be provided against the invoice value. In terms of chronology, at its most basic form an invoice is sent out to the end buyer; this is acknowledged and assigned in favour of the funder and a percentage of funding is advanced against it. When payment is made to the lender at the defined time; usually within 30, 60 or 90 days, the funder will deduct their fees and the amount lent or advanced. Any remaining funds are paid back to the borrower.

    The process above is called receivables discounting or invoice finance. There are many other terms for it but at its most basic; funds are provided towards against an incoming receivable or invoice.

    Download our receivables discounting infographic

    Case Study

     

    Wholesaler of soybean produce

    Company X is exporting soybeans to the UK from Peru. The soybeans are stored in a warehouse in the UK until the customer wishes to buy the produce. A receivables discounting agreement would be used to enable Company X to receive funds once the end customer is sent an invoice and a funder agrees to discount the invoice (paying Company X on 30-90 day terms).

    Speak to our trade finance team



    Our trade finance partners

    • Supply Chain and Payables Finance Resources
    • All Payables Finance Topics
    • Podcasts
    • Videos
    • Conferences
    Latest
    A-Z Latest
    Back to Top