What Kind of Business Finance is Invoice Discounting ?
Invoice discounting, sometimes known as spot factoring, is an alternative type of business finance. A way for small, under-capitalised businesses to generate business finance (working cpaital)from their accounts receivables. It can also be used to overcome unforseen, short-term cash-flow problems. It is ideal for any business which sells on credit but whose growth has outstripped their working capital.
It is similar in some ways to
but also quite different in others. Much more flexible, you use it only when you need it. It is also ideal for smaller businesses that would not qualify for factoring or bank debtor finance.
It can be very cost-effective for businesses in a rapid growth scenario.
Invoice discounting example: A small contracting firm gets a big opportuntiy,
perhaps a government backed contract, that will greatly increase their turn over. But, they need to take on two or three more workers and purchase various items to make the job happen. If they are
they will run out of cash before they receive the income the new contract will generate. The business owners retain 100% ownership and control of their business and don't sacrifice shares to generate capital.
For some businesses,
especially tradesmen, this business finance solution
can be set up so that there is little or no cost to the business - the customers pay the discount for the privilege of having the credit.
Find out more about how to make this system work for your business.
Invoice discounting is not appropriate for dealing with bad debts. If you think your situation requires
debt collection, click here.