Business financing simplified

Invoice Discounting

Business financing simplified

Invoice Discounting
in a nutshell

Invoice discounting is an invoice finance product that allows you to borrow funds against your entire sales ledger. Usually, a business will be able to borrow up to 90% of the outstanding invoice value. In invoice discounting does not include credit control as part of the service. As such, the most common form of invoice discounting is Confidential Invoice Discounting (CID), which is where the funder sits behind, and funds against the sales ledger confidentially from the end debtor. Invoice discounting facilities can also have the lender disclosed to the end debtor, although mainly this happens in cases where the business is liable to disputes or claw-backs (eg construction).

With all forms of Invoice Discounting, the borrower will need to re-divert customer payments to the lender’s trust account (in the borrower’s name). Unlike Factoring, where the lender gets involved in collections, the customers and clients just keep paying as normal and in CID, do not know the lender is involved. 

A working example; Company A is set up with an Invoice discounting facility (confidential) – they have £250,000 in outstanding invoices and have a drawdown % of 85%. They can therefore access £212,500 of cash on these invoices. When an invoice is paid (eg £50k), the amount drawn goes down to £162,500 on invoices outstanding of £200,000, therefore, the company has drawn 81.25% of eligible receivables, and has the ability to draw another £7,500. The same process when a new invoice is raised (eg £50k), then an additional £42,500 is available to draw down.

The security required depends on the lender but as a general rule, you will need to offer at least first charge debenture on your accounts receivable, and it is likely to be a sort of guarantee, either a personal guarantee or a form of anti-fraud indemnity.

Some of our lenders

Cash flow

Leveraging your future cashflows is going to give a working capital increase. The balance sheet is not impacted too much as the asset moves from AR to cash, and as such, is cash flow positive for the borrower.


Director protection

Invoice finance is secured on your debtor book, so in a worst-case scenario, the likelihood is that your lender will be able to collect their borrowing on your outstanding debts being repaid. As such, the director is likely to be less personally liable than they might be for an unsecured loan.



Invoice discounting facilities will tend to grow as you grow. Given you can draw up to 85% of the outstanding invoices, if your invoices grew by 50%, the likelihood is that the facility can flex with that.


Lender partnership

With invoice discounting, the lender tends to look at the relationship as more of a partnership than a typical loan lender - they will grow as you grow and as such are vested in making sure that they understand your business and understand your plans.


Who is Eligible?

  • Businesses that use card terminals as a form of payment.
  • 2+ years track record of merchant statements.
  • Seasonal businesses 
  • Good or bad business credit.

How does it work?

1. Assessment: understanding the business, the sector, the sales process, the customers, and the profile of the ledgers. Creating an application for the suitable lenders.

2. Application: Making applications to lenders and ensuring the lenders get a good understanding of the profile of the debt and the business. The application process may involve face-to-face time with the lender on-site or virtually.

3. Funding: After the offer is made and the legal documents signed, the lender will make the funds available and you can then opt to draw down the amount required.

How Much Does It Cost?

Invoice discounting offers tend to have an array of fees associated, and understanding them is half the battle. As a headline, the 2 main fees to be concerned about are:

The additional fees will likely include fees for setting up, fees for bank transfers and refactoring fees, which are chargeable if an invoice needs to be reassigned to the borrower (eg in the event of becoming long overdue on payment terms).


With Confidential facilities – No, the debtors will not know that you have a facility in place. With disclosed facilities (or factoring) then your debtor will know about the arrangement. Disclosure is a perceived serious issue for lots of business owners; in the modern era however, invoice finance is understood by debtors and is par for the course, so in the vast majority of cases, we would not envisage the disclosure giving any type of problem.

Bad debt protection (credit insurance) is offered by most lenders, which may cost a little (between 0.2 and 0.6% on turnover), but protects the borrower from the insolvency of their debtors. Depending on the credit profile of the customers, the lenders may insist on this,or may offer it as an optional extra.

This varies from lender-to-lender. It is most likely to take 2-6 weeks, depending on how complex your sales process is and how large the facility needs to be

You will need; full filed accounts, latest management accounts, 12 months bank statements, aged receivables and creditors and then an ‘audit trail’ of a typical transaction with your main customer(s) – this will likely involve your contract, a purchase order, any sign off of works/proof of delivery, your invoice and then a remittance advice/bank statement confirming the invoice has been paid.

Qualifing questions

Can I Borrow?

Get Invoice Finance

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Get Invoice Finance

Please pop your details in the form below and we’ll get back to you within 24 hours.

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