An In-Depth Guide to Confidential Finance including Invoice Discounting

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An In-Depth Guide to Confidential Finance including Invoice Discounting

Updated: 6th August 2021

If you’re looking to leverage the value in your sales ledger but don’t want to jeopardise goodwill you’ve built up with customers, invoice discounting may be the right type of invoice financefor you. Credit control is managed in-house, with no mention of third party involvement on your sales invoices.

So what are the main characteristics of invoice factoring and discounting? Firstly, let’s have a look at invoice factoring.

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Customers won’t be aware that you’re borrowing against their debt, and it’s also interesting to know that invoice discounting isn’t the only confidential option within the invoice finance umbrella. Confidential factoring could also bring huge benefits if you don’t have the resources to manage credit control effectively in-house.

How does confidential invoice finance work in practice?

These are the basic steps when you use confidential finance:

  • You invoice your customer for the work completed, with your business as recipient for payment, sending a copy of the invoice to the service provider.
  • The lender then advances a pre-agreed percentage of your invoice (often between 80% and 90%), usually within 24 hours.
  • Confidential factoring: the lender carries out credit control procedures confidentially in your name.
  • Confidential discounting: you chase outstanding payments as normal.
  • When full payment is received from your customer, it’s paid into a ‘trust’ account set up in your company name but under the lender’s control. Customers, therefore, do not realise that a third party has been involved at any stage.
  • Your lender withdraws each payment from the account, and refunds the balance to you minus their fees and charges.

Benefits of confidential factoring and discounting

Invoice finance introduces regular cash amounts to your business, based on work already completed. This makes it a low risk option for both lender and borrower, with the added advantage for some small businesses of being able to hand over responsibility for the sales ledger to the factoring company.

Not only does this carve out time to concentrate on other activities and increase revenue, it also allows for strategic planning that was otherwise not possible due to time-restraints.

The fact that a confidential option is available with both factoring and invoice discounting makes this type of finance suitable for those sensitive to adverse reactions from their customer base.

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Finding the best invoice finance company

You may be wondering where to start when it comes to finding the best finance provider. Some businesses approach their own bank, and although many large financial institutions do have an invoice finance department, don’t forget the numerous independent lenders that have entered this market.

Specialist providers can offer in-depth, sector-specific knowledge that brings added benefits for your business. Many now offer trial periods so that you’re not tied into a long contract before you’re ready.

One of the best ways to find the right lender is via an invoice finance broker. They will take time to understand your needs and objectives, and put you in touch with the most suitable factoring and discounting companies.

Real Business Rescue has a wealth of knowledge in the area of invoice finance, along with numerous long-standing links with banks, as well as specialist lenders both online and on the high street. Call one of the team to make an initial consultation free-of-charge. With 100 offices stretching from Inverness down to Exeter, Real Business Rescue can offer unparalleled director advice across the UK.

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