Selective Invoice Discounting

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    What is selective invoice discounting?

    Selective invoice discounting or single invoice discounting offers a facility that enables businesses to release the funds tied up in a single unpaid invoice. The finance provider buys the invoice at a discount and advances cash that can be used by the business to increase cash flow and working capital. The business can also utilize the cash to facilitate its growth operations. Selective invoice discounting is a neat solution that gives businesses access to adequate, ‘bite-sized’ financial injections when they sell their account receivables one at a time as opposed to selling the whole sales ledger.

    How does the process work?

    Selective invoice discounting can be obtained in a few easy, uncomplicated steps:

    • The business singles out the invoice they wish to sell and proceeds to forward a copy of the invoice to the provider
    • The invoice discounting provider approves the invoice
    • The business then receives the advance payment which is usually a maximum of 95% of the invoice’s total value
    • The advance payment can be obtained within as little as 24 hours, and the business receives the remainder of the invoice balance after the customer finally pays
    • The finance provider subtracts a fee (usually interest + service)

    Differences between Selective Invoice Discounting and Spot Factoring

    Selective Invoice Discounting and Spot factoring are all forms of invoice finance. They both facilitate advance payments received by businesses from finance providers against a single, individual invoice. The main point of distinction between the two is whether a business retains control of their sales ledger or not. With discounting, businesses maintain control over their ledger and customer relationships, whereas factoring requires customers to be alerted as the provider assumes control of the ledger and collections.

    Businesses that can benefit from Selective Invoice Discounting

    When companies use invoice finance to obtain working capital and boost cash flow by selling their unpaid invoices, they do so at a discount. The finance provider will charge a service fee as well as interest. When invoice discounting and factoring are applied to a business’ whole ledger, this means more charges are incurred, and profit becomes limited even though the business is receiving the cash flow it needs. Selective invoice discounting provides a way around this, especially for businesses with seasonal revenue fluctuations or large invoices from fewer customers. It is also appropriate for businesses that:

    • Are seeking short-term financing solutions
    • Are engaged in business-to-business or business-to-government operations
    • Have unreliable cash flow patterns
    • Wish to capitalize on early payment discounts from suppliers
    • Have one customer or very few customers
    • Have a one-instance, urgent requirement for cash flow, e.g. purchase of material supplies
    • Want to cover a brief cash flow shortage 

    Advantages of Select Invoice Discounting

    • Businesses hang on to control of their sales ledgers, accounts receivables, and customer relationships
    • Customers are not alerted when the facility is in place to maintain confidentiality
    • It can be utilized on a when-strictly-necessary basis
    • Advance payments are quickly accessible (24 hours minimum response time)
    • No termination fees are involved
    • Contract and agreement is short-term hence fees are not continually re-occurring
    • Unlocking funds from unpaid invoices without waiting to receive payment after months allows businesses greater access to cash flow needed for growth

    Selective Invoice Discounting Works Best for Large Turnovers

    While the advantages of selective invoice discounting are numerous, it is more applicable to established businesses with larger turnovers. For SMEs, start-ups and struggling businesses spot, factoring is often recommended. This is because funding from finance providers is based on the creditworthiness of customers and if a business wishes to retain control of their ledger they have to prove that they have an active credit management and collections system in place. To lower the risk that finance providers take on, businesses that are eligible for selective invoice discounting also have a minimum one-year trading history plus a track record of receiving timely payments from customers. They also transact with government agencies and other larger businesses.