The best way to make sure your company is always on the right financial track is by knowing all of the options available to you. This includes invoice discounting, which can offer some great benefits for contractors who need cash up front. Read below to find out more about what it means and how it works!
Contractors are always looking for ways to improve their business practices so they can be more profitable down the line. But sometimes, businesses get in a tight spot where they need money up-front but don’t have any assets or collateral that would allow them access to traditional loans or lines of credit. That’s when invoice discounting comes into play —a type of financing that helps companies with this exact problem. To learn more about how it can help your business, keep reading below!
Invoices are a document that details the transaction and include payment amounts. They’re sent by providers of goods or services to their customers, who agree in advance to pay for what they’ve received at invoice time (or soon thereafter).
What is Invoice Discounting?
Invoice Discounting is a method of financing that allows you to borrow money against unpaid invoices. It’s perfect for contractors who need cash flow relief and don’t want to wait until they get paid by their clients.
But there are many things that you need to consider before taking out an invoice discounting loan, like if your company has enough net worth or whether it can repay the debt. If you’re interested in learning more about how invoice discounting can help your business, keep reading below!
how does invoice discounting work?
Do you know how invoice discounting works? It’s a process that allows you to trade your outstanding invoices for cash and reduce the amount of time and money it takes to collect on that debt.
Don’t let your suppliers slow down your business! Let Invoice Discounting give you more time and money by trading our outstanding invoices for cash.
We would love to chat with you about this opportunity over the phone so I can answer any questions or concerns before we move forward.
Why do we offer invoice discounting service?
Firms may use invoice discounting providers like us to increase the value of their sales ledger. When you choose Mwananchi Credit, Full, or a percentage of the entire amount becomes accessible from us when you send out invoices to clients, providing your business with a stream of working capital throughout the month while you wait for your invoice to be paid.
We also buy invoices from firms looking for financiers. The firm receives a percentage of the amount invoiced to the client immediately after selling an invoice to us, and the we are responsible for collecting the complete payment from the buyer.
Businesses may improve their cash flow and working capital cycle by selling their invoices and getting rapid access to cash. This form of financing is a popular option for companies who don’t want or can’t wait for their customers to pay their invoices. It’s a popular alternative to standard financing options like loans and overdrafts.
The benefits of invoice discounting
Enhanced management – The sales receivables are still under the seller’s ownership. He is the only one who can control the credit conditions, negotiate new transactions, collect payments, and so on.
Confidentiality – The secrecy of invoice discounting can be guaranteed by the discounting companies. The company’s loans versus sales invoices do not require to be disclosed to suppliers or consumers. Your clients are not aware of the arrangement between the lender and you/your company.
For businesses, it’s a win-win situation – The borrowing firm will be able to receive the funds it requires, while the consumer will be offered a credit term. This results in a win-win situation for both the corporation and its customers.
There is no impact on commercial relationships – Discounting firms have no or very little communication with their customers. As a result, the buyer is certain that he will only be accountable to the seller and not to third parties.
Increases the amount of space available for credit sales – The corporation has the option of increasing sales through cash or credit. If a procedure is in place, credit sales may be turned into cash rapidly, and the firm does not have to worry about the liquidity issues that occur with credit sales.
invoice discounting Process
The first stage is to select whether or not you wish to discount your whole accounts receivable ledger, a process known as full turnover invoice discounting. Selective invoice discounting, on the other hand, allows you to discount only a few specified invoices. Keep in mind that selective option is not always available for small firms. Because invoice discounting firms seek to spread their risk as much as possible, this is the case.
Then, get in touch with a few invoices discounting companies and compare their services and rates. Request references from their consumers if at all feasible. In most circumstances, these will be anonymous, but they may still be valuable in determining which firm to utilize. Consult your accountant before making a final decision; they may be able to provide helpful guidance.
Your chosen firm will walk you through the procedure once you’ve partnered up. This involves setting up repayments for you, establishing a charitable trust for accounts receivable (if necessary), and integrating with your invoicing process to ensure that you get paid as soon as desirable.
Why we are the Best invoice discounting company
We provide invoice financing services to SME’s from industries such as Technology, Construction and Retail.
In short, we give you instant access to your invoices so that you can focus on growing your business instead of worrying about how you will meet the payment terms on invoices for goods or services that have already been delivered.
Flexible repayment plans allow for customized cash flow requirements with weekly reporting and automated reminders when due dates approach.
This innovative financing solution gives companies like yours the opportunity to grow with greater ease and increase confidence in an increasingly competitive marketplace!
With our help, your invoices will be paid on time without any challenges!!!
Mwananchi Credit LTD invoice discounting fees
The credit management fee for invoice discounting could range from 0.2 – 5 per cent of gross turnover, while typical fees for a factoring agreement are likely to be between 1 and 3%.
What are the risks associated with invoice discounting?
Discounting bills requires no collateral, which implies the lender will seek a personal guarantee. There might be substantial legal ramifications if your bills are late or the client’s business goes bankrupt.
If you don’t properly verify the guidelines and agreement, or if you don’t pick the correct service provider, discounting bills might end up costing you a lot of money. Instead, you can find yourself in a financial whirlpool.
During the billing time, you may have a disagreement with the customer, and they may refuse to pay the invoice. This will put you in a scenario where you have already obtained the funds from the lender, but the client has not made the payment.
When to use invoice discounting instead of traditional financing methods?
To begin progressing with clientele – If you work with large customers that require extended payment but provide a company that is too important to throw away, invoice trading may be willing to assist you to maintain these connections without sacrificing your cash flow.
To process the payment – If you have short-term cash flow issues and your vendors are demanding compensation for a significant order for which you haven’t yet made a purchase from sales, invoice discounting may be able to help you meet those expenses. It’ll probably be less expensive and easier than requesting a line of credit, plus it’ll be hidden from your consumers.
When seizing a window of opportunity – If you’ve identified a business opportunity that requires you to invest in operations and new staff right away, but your cash is locked up in receivables, invoice factoring may be able to help you get the money you need now while also allowing you to outsource credit control, allowing you to focus on the new investment opportunity without distractions.
Frequently Asked Questions (FAQ)
Why should you consider using invoice discounting to meet the company for your needs?
Firms that send out invoices as soon as the job is finished profit most from invoice discounting since they have continuous cash flow all throughout the month. They’d have to wait until the end of the month for a lump sum payment otherwise, which isn’t always a possibility.
Many invoice discounting providers lend between 80 and 90% of the invoice value. You go through your typical collection process with your consumers after receiving the upfront loan. Fees are frequently set in a fairly open and transparent manner by lenders. As a result, small firms should plan ahead of time for everything.
What are the companies that offer invoice discounting?
Mwananchi Credit Limited offers invoice discounting to customers across all counties in Kenya. This allows you to sell outstanding invoices to a lender, who then gives you a cash advance based on a percentage of the invoice’s value, just like with any other sort of invoice financing. The lender pays you the remaining sum less their charge when your customer has paid the invoice.
What’s the difference between invoice discounting and factoring?
These are two methods of obtaining a cash advance on unpaid debt. In contrast to invoice discounting, which is a loan secured by your unpaid bills, invoice factoring businesses buy the unpaid invoices entirely. This is a significant distinction since it gives factoring firms credit control and allows them to engage directly with clients. Although you won’t have to worry about hunting down late payers, if the factoring firm takes excessive actions, it may cause poor opinions of your organization.
Is invoice discounting appropriate for small businesses?
The Answere is yes, it is a terrific way to invest while also shielding yourself from market instability and earning high returns. On the Mwananchi Credit Limited platform, these bills are reduced and purchased by investors. This eliminates any market intervention and, as a result, all reliance on market health.
Small firms that send out invoices as soon as the job is finished benefit the most from this service since they have continuous cash flow throughout the month. They’d have to wait until the end of the month for a lump sum payment otherwise, which isn’t always a possibility.
What is an example of invoice discounting?
An invoice factoring provider would normally advance you 80 per cent of the invoice amount if you finance a Ksh. 10,000 invoice. When the invoice is assigned to them, it might be ksh. 8,000. When the consumer repays the invoice, you will receive the remaining Ksh. 2,000 (due to the loan company’s fee charge).
Invoice discounting is a form of financing that allows you to purchase goods or services with the help of an invoice. The benefits include no upfront costs, short-term repayment options, and flexible payment schedules. There are also risks associated with this type of financing – it can affect your credit rating if not paid on time for instance. You should only use invoicing when traditional financing methods aren’t available or feasible in terms of cost; however, it’s something worth considering if you’re looking to grow your business without taking out any loans upfront!