How can invoice discounting help?
Invoice discounting is a type of financing that can help businesses manage their cash flow and overcome temporary cash shortages. It works by allowing a business to obtain finance against some or all of its outstanding invoices. This provides the business with an immediate injection of cash that can be used to cover operating expenses, pay suppliers, or invest in growth.
Alternatively the finance provider can also take on the role of collecting payments from the customers, and managing the debtor book. This is a more expensive solution which is called factoring. Faactoring can be useful for small or start up businesses who do not have sufficient resources to effectively manage their debtor books. The advances are usually based on the value and creditworthiness of the invoices being discounted, and are repaid when the customer pays the invoice.
Invoice discounting / factoring can be particularly useful for businesses that have a large number of outstanding invoices, but need cash sooner to meet their financial obligations. These facilities can provide quick access to cash, and can help businesses overcome short-term financial challenges and maintain their operations.