Plenty of profitable businesses run short of cash. Work is delivered, invoices are issued, and then comes the wait while salaries, suppliers and rent carry on regardless. Invoice discounting exists for exactly that gap.
How it works
Rather than waiting for a customer to settle, you receive an advance against invoices you have already issued. When your customer pays, the advance is repaid. In practice the sequence is simple:
- You deliver the work or goods and issue the invoice as usual.
- You submit eligible invoices for review.
- An advance is released against them, typically a proportion of their value.
- Your customer pays on their normal terms and the facility is settled.
What makes an invoice suitable
Not every invoice qualifies. Facilities generally work best where the work is already complete, the customer is established and reliable, payment terms are clear, and the invoice is not in dispute. Long-overdue or contested invoices are usually excluded, because the uncertainty they carry is exactly what the facility cannot absorb.
How it differs from a loan
A term loan adds new borrowing that you repay from future earnings. Invoice discounting releases money you have already earned but not yet received. That difference matters: the facility naturally rises and falls with your sales rather than sitting on your balance sheet as a fixed commitment.
It is also not a substitute for pricing or collecting properly. If invoices are routinely paid very late, discounting eases the symptom while the underlying issue remains. Used alongside firmer payment terms, it can buy you the breathing room to fix that.
When it tends to help most
- You supply larger customers who pay on extended terms.
- You need to start the next job before the last one is paid.
- Growth is increasing the gap between delivering work and being paid.
- A seasonal peak means committing to costs well before income arrives.
Costs, eligibility and advance rates vary with the profile of your invoices and customers, so the only reliable figures are the ones quoted for your situation. If you would like to know what your invoice book could support, send us the details and we will talk you through it.
