Invoice Discounting - Great Tool To Finance Your Business
Invoice discounting, as it name implies, involves selling your invoices for immediate cash, at a small discount. Its value proposition is very simple. Are you willing to get paid now with a 1.5 per cent to 6 per cent discount from your invoices? Consider that many business owners offer a 2 per cent discount to businesses that pay within 10 days. So, invoice discounting offers a similar proposition.
Of course, invoice discounting or invoice factoring as it is also called is not for every business. It works best when your profit margins are above 15 per cent and if you use the accelerated funds to pay for business expenses or to pursue new business opportunities.
Factoring companies always purchase your invoices in two installments. The first installment, referred to as the advance, covers up to 85 per cent of the invoice. The remaining 15 per cent (less the discount) is rebated once the customer actually pays the invoice. Invoice discounting is easy to obtain and can be set up in days. The biggest qualification requirement is to have invoices from reliable clients. So, if you are sitting on a whole bunch of slow paying invoices, be sure to consider invoice discounting.