The elastic finance of invoice discounting

By LBV

02 Aug 2011

The phone rang.

Dave picked it up.

It was a customer ordering saw blades.

Dave wrote down the details on a pad.
To my horror Dave had used the sales invoice pad and he proposed to send the invoice to the factoring company that very day so he would be paid before he even purchased the saw blades.

But factoring carries the stigma of financial difficulty. This lead to the growth of confidential invoice discounting where there is no disclosure to the customer.

Also, prior to 2001 banks happily lent on overdraft, safe in the knowledge that their fixed and floating charge placed them near the top of the pile in the event of a client’s failure.

But a Privy Council ruling in 2001 changed all that by pushing the banks too far down the security pecking order for their liking.

The banks responded by transferring their banking clients over to their invoice discounting subsidiaries where not only was the security better but the rewards were also higher too. This is the biggest growth area in the financing of SMEs.

The 48,000 plus companies using these facilities are, generating a combined turnover of £200 billion.

So, what exactly is invoice discounting?
It’s a quick way to free up money without changing your credit control procedures. Unlike bank overdrafts, it¹s a flexible facility that grows with your business.

This is the elastic finance.

What are the benefits of invoice discounting?
• Immediate working capital ¬ the more you invoice, the more cash you get. Up to 90% of sales invoice value available when you bill your customers.
• It’s confidential – your customers will never know.
• Cleared funds can be in your account the day after you raise the invoice.
• You retain control over your credit control function.

What are the disadvantages of invoice discounting?
• The cost of an invoice discounting facility will reduce the profit margin on each order your business transacts.
• It reduces further borrowing.
• An invoice discounter will almost always want to run a credit check on your customers and as such may influence who you do business with.
• It may be difficult to end the arrangement as you will have to raise alternative finance.

Norman Snodgrass
Mayes Accountants

 

Enjoyed this? Read more from LBV

Latest news

1

Major shareholder makes Inspired takeover bid inspired-500x500.png

Major shareholder makes Inspired takeover bid

23 Apr 2025

2

Nominate your favourite family-run business in Lancashire. Thompsons meeting (1).png.png

Nominate your favourite family-run business in Lancashire.

22 Apr 2025

3

Business academies to continue for an additional year Cllr Mark Smith (r) with Top Gun Tools & Fixings team presenting Blackpool Net Zero Academy certificate

Business academies to continue for an additional year

22 Apr 2025

4

Napthens advises A Lamb Associates (ALA) and subsidiary Morham & Brotchie Partnership on their acquisition by Hawkins & Associates Richard Robinson Feat IMG

Napthens advises A Lamb Associates (ALA) and subsidiary Morham & Brotchie Partnership on their acquisition by Hawkins & Associates

22 Apr 2025

5

Six promotions at Farleys Solicitors Promotions at Farleys Solicitors

Six promotions at Farleys Solicitors

22 Apr 2025

Pc Prestonmacan Gif980x120 March
Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
LBV122 May/June Launch Event
121 Lancashire Business View Magazine Launch
Networking
21 May 2025

LBV122 May/June Launch Event

Lancaster and Morecambe College, Lancaster, LA1 2TY

08:30 - 10:30

Sub36 Networking
Networking
11 Jun 2025

Sub36 Networking

British Jewellery School, Scorton, PR3 1BA

15:00 - 17:00

Lancashire Net Zero Carbon Conference
Net Zero Carbon Social 1200px 2
Networking
18 Jun 2025

Lancashire Net Zero Carbon Conference

Crow Wood Hotel & Spa Resort, Burnley, BB12 0RT

08:30 - 13:00

Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

RISE - The Academy for Female Leaders and Managers
WENDY BOWERS RISE Illustrstion copy.jpg.jpg
LBV Hub Seminars
02 Apr 2025 - 08 Oct 2025

RISE - The Academy for Female Leaders and Managers

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:00 - 15:30

The Business Network Central & East Lancashire
LBV Hub Networking
24 Apr 2025 - 24 Apr 2025

The Business Network Central & East Lancashire

Stanley House, Blackburn, BB2 7NP

11:30 - 14:15

Preston Freelancer Meet-Up: April
1.png.png
LBV Hub Networking
25 Apr 2025 - 25 Apr 2025

Preston Freelancer Meet-Up: April

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

People Power: Exclusive Event Series
Stay ahead in 2025.jpg.jpg
LBV Hub Seminars
29 Apr 2025 - 29 Apr 2025

People Power: Exclusive Event Series

People's History Museum, Manchester, M3 3ER

17:00 - 21:00

Planning for the future + navigating Inheritance Tax changes
Planning for the future + navigating Inheritance Tax changes for website.png.png
LBV Hub Seminars
01 May 2025 - 01 May 2025

Planning for the future + navigating Inheritance Tax changes

Stanley House Hotel, Mellor, Blackburn, BB2 7NP, Blackburn, BB2 7NP

08:00 - 10:30

A night at the races
1.png.png
LBV Hub Dinners / Balls
02 May 2025 - 02 May 2025

A night at the races

Morecambe FC, Morecambe, LA4 4TB

19:00 - 23:59

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more Lbv121 Online Graphic
Subscribe now

Weekly news bulletin