Invoice Discounting Explained
How Does Invoice Discounting Work?
With Invoice Discounting, you issue an invoice to your customer as usual. You then present a copy of the invoice to the finance provider, who can release 75-85% of the invoice value, depending on individual circumstances. Unlike Invoice Factoring, where the finance provider takes over payment collection, with Invoice Discounting, your business retains control of credit management and customer collections.
Once your customer pays the invoice, you transfer the funds into a designated client account with the finance provider. After the funds clear, the provider releases the remaining balance of the invoice to you, less their fee. This method ensures that you can access most of your cash quickly, while still maintaining full control over your client relationships and collections process.
Invoice Discounting is ideal for businesses with strong internal credit control systems. It accelerates cash flow by turning debtors into immediate cash and maximises working capital from your sales ledger.
Why Choose Invoice Discounting?
Invoice Discounting is well-suited for companies with an annual turnover of more than AUD 500,000 and an established credit control function. It allows you to inject capital into your business swiftly, without dealing with banks or giving up equity. Unlike bank overdrafts, this facility is flexible and grows with your business.
For businesses with a strong credit management team, Invoice Discounting offers significant advantages, including rapid access to working capital without changing your existing operations.
However, if your business struggles with managing late payments, Invoice Factoring may be a better option, as it includes dedicated credit control services to manage customer collections.
Benefits of Invoice Discounting:
- Improved cash flow: No need to wait 30-90 days for payment.
- Up to 90% of invoice value is available immediately after billing your customers.
- Bad Debt Protection can be added to safeguard against customer insolvency or non-payment.
- Rapid access to funds: Cleared funds are available the next working day.
- Controll: You retain full control of your credit management processes.
- Flexibility: The facility grows or reduces in line with your outstanding invoices.
- Lower risk: Unlike traditional loans, there is no risk of missing repayments, as financing is tied to invoice values.
Ideal Businesses for Invoice Discounting:
- Business-to-business companies: Operating within Australia or internationally.
- Annual turnover of over AUD 500,000 (We can assist businesses with turnover starting from AUD 100,000).
- Invoices with trade credit terms of 14 to 90 days.
- Established credit control systems.
Fees
Typical interest charges range from 1.5% to 3% over the base rate, calculated on a daily basis. These rates are comparable to bank overdrafts and may even offer more favourable terms.
Invoice Discounting fees typically range from 0.2% to 0.5% of turnover, as the service is purely financial. If you opt for credit protection, additional charges may apply, depending on the level of risk assessed by the finance provider. These charges generally range from 0.5% to 2% of turnover.
For more information on Invoice Discounting or any other form of Invoice Finance, please visit our website or contact us directly. As independent Invoice Finance specialists, we are not tied to any single provider, ensuring we can source the best solution tailored to your needs.
