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Products

Invoice Discounting UK can source both Confidential Invoice Discounting and Disclosed Invoice Discounting.

Both products are true Invoice Discounting Products in that the client raises the initial invoice, handles all the credit control and collects payment from their customers. The difference is simply that with a Confidential facility, your customers are unaware of the Discounters involvement but with a Disclosed facility they are aware of the Discounters involvement.

How Invoice Discounting Works
 

  • The client sends his customers invoices for completed work.
     
  • The client sends a sales day book listing to the Discounter.
     
  • The Discounter pays up to 85% of the invoice values to the client.
     
  • The client runs the sales ledger - telephone/statements.
     
  • The client collects payment from the customers, banks the payments into a trust bank account and notifies the Discounter.
     
  • The Discounter collects the funds from the trust bank account and releases the balance of 15%, less charges, to the client.

Obviously in most cases there will be an existing sales ledger in place at the time when an Invoice Discounting Agreement commences. In this case the Discounter can make available funding of up to 85% of the qualifying book debts, which in many cases can provide a healthy cash injection, even when existing bank overdrafts have to be repaid.

Invoice Discounting Costs

There are two main charges in Invoice Discounting Agreements:-
 

  • Service Fee - This is a percentage charge on the clients actual turnover ; usually 0.1% to 1.0% of invoice value.
     
  • Cost of Money - This is an interest charge on the funds advanced by the Discounter ; usually 1.0% to 2.5% over bank base rate. This charge is usually quite competitive when compared to bank overdraft rates.

It should also be noted that most Agreements will have a minimum annual charge imposed which relates to the level of service fee income generated during the year. In most cases this charge is around £6,000 but some flexibility can be obtained for lower turnover clients.

Invoice Discounting - Further Options - Asset Based Lending

Although Asset Based Lending has been available in the UK since the mid 1980's, it is only since the latter half of the 1990's that this American based Corporate funding model has taken a real hold in the UK Market. Whilst discounting a client's book debts remains the main constituent of this product, the key difference is that a wide range of other assets can be introduced as additional security. This has the benefit of greatly increasing the level of funding that can be obtained.

The assets that can be included range from Stock, Plant and Machinery through to Property. The increased funding available may be shown either as specific additional facilities against each of the products, or more usually, by simply offering an increased initial percentage against book debts which can be as high as 200% of their value.

Asset Based Lending has tended to feature more predominantly in transactional situations such as MBO's and MBI's to date but increasingly it is being considered in growth, refinancing and turnaround situations. Invariably, because of the range of assets involved the deal sizes range between £1m to £100m and over.

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Invoice Discounting UK
The Cashflow Resource Ltd. 3 Ridley Close, Hexham, Northumberland, NE46 2YL.

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