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What is selective invoice discounting?

1) In a nutshell

Selective invoice discounting, like spot factoring, is where individual invoices (or receivables) are sold to a third party at a discount to raise working capital.

Factoring facilities are traditionally whole turnover, meaning the company must factor their entire sales ledger. This can become expensive and not reflect the most cost effective solution for companies to raise their working capital.

Many small businesses have seasonal fluctuations in cash flow and so selective invoice finance would be a much cheaper solution.

2) Also known as...

Spot factoring, Spot invoice finance, Single invoice factoring

3) How it works

Selective invoice discounting works in a similar way to spot factoring.

  • The company, typically with revenues over £500,000, assigns an invoice to the discounting company, having agreed terms and fees
  • The discounting company advances a percentage of the invoice face value to the business client upfront, typically 70-85%.
  • Unlike factoring, invoice discounting helps you keep control over your own sales ledger and client relationships

4) Advantages

For a fee, invoice discounting companies can unlock funds tied up in an individual unpaid invoice so that your business receives a percentage of the funds without waiting for the end customer to pay. For a large invoice, this process can provide a large cash boost for a business.

Invoice discounting lets you keep control of your sales ledger and your client relationships.

5) Disadvantages

Typically, the traditional invoice discounters don't allow businesses to get finance against their entire sales ledger, despite the fact that fees are charged against the entire turnover of the business.

It can take a long time, up to several weeks, to set up with a selective invoice discounting facility.

6) Glossary

Assigning an invoice

Unlike with traditional ‘whole ledger’ factoring, the business may not have an existing relationship with the discounting company. It may take several days or weeks to apply and be approved, and once that is done funding is advanced when the business client ‘assigns’ an individual invoice to the discounting company.

7) Next steps

Also see… factoring vs invoice discounting, factoring, invoice discounting, spot factoring


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