• Using Early Payment Discounts To Improve Cash Flow

    How to improve the cash flow of your business by request thing early payments and offering discounts how to improve the catchment of your business by questing early payments and offering discounts to customersRecently, we received an enquiry from a prospective customer seeking selective invoice finance. They were having a temporary cash flow problem, but they had two invoices totalling £5K that they said they wanted to discount in order to access the cash tied up in those invoices, immediately.

    Selective Invoice Finance Versus Early Payment Discounts

    Selective invoice finance would seem to be the perfect solution, as there would be no obligation for them to discount further invoices, and it would release circa 85% of the invoice values immediately. Furthermore, these types of facilities can be set up very quickly, so they are likely to be able to receive funds within a day or two at most.

    However, in this particular situation the debtors were in a cash rich position, whereby they were able to make payment prior to the due date of the invoices. The only issue was incentivising them to make an early payment. By offering a small discount on the value of the invoices, the prospect was able to get them paid immediately, by the customers.

    The key consideration in such situations will be the amount of discount that has to be given in order to achieve early payment by your customers. If you customers demand more than just a few percentage points off the value of an invoice, in order to pay immediately, it may well turn out that invoice discounting is a more cost-effective option.

    Furthermore, all customers may not be in a cash rich position such that they can afford to make an early payment, in return for an early settlement discount. In such cases, an invoice financing arrangement, possibly on a selective basis, could be a better solution. The other advantage of using an invoice financing arrangement is the ability to discount further invoices, as and when cash flow issues present themselves, without having to go cap in hand to customers each time.

    The size of the early payment discount required can often be an issue. People tend to think in terms of round amounts e.g. 5%, 10% etc. which can make offering discounts a very expensive option when compared with the cost of invoice discounting the invoice.

    Another drawback of offering discounts, rather than using invoice discounting, is that some customers will take these discounts even though they pay late. OK, technically you may have the right to pursue them for the balance, but in practice this can often prove to be cost prohibitive, due to the small amounts of discount that maybe involved. In some cases, customers can just end up taking the early settlement percentage, or amount, off of their payments, regardless of when they pay, and you may be forced to write this off.

    Share with:

Related articles

  • Read More

    Selective Invoice Funding Is Still Available

    Previously I reported that the selective invoice finance (SIF) industry has mostly moved away from the invoice auction model, towards a model whereby pricing is determined according to a pricing policy for each funder.There still remain a number of SIF providers that offer flexible funding against individual invoices, or batches of invoices. Some sectors, such as car crash repairers, have their...

  • Read More

    Selective Debtor Finance.

    Selective debtor invoice finance (SDIF - also called single debtor finance SDF) is subtly different from selective invoice finance (SIF), and other types of receivables financing.With SDIF, you choose which debtors you want to receive funding against. You then submit all of your invoices, billed only to those chosen debtors, to the finance company for funding. You do not receive funding against...

  • Read More

    Single Invoice Finance For A Fashion Designer

    Glamorous is not how you might typically describe the world of invoice finance, but sometimes we can become involved with funding far more glamorous sectors, such as the case below, in the fashion design sector.This was a case where we were able to assist a small fashion designer that was looking for funding against a single invoice initially. I have written recently about how late payments are...

  • Read More

    The Price Of Single Invoice Finance

    Comparing prices for single invoice finance is not quite as straightforward as you might expect. I have just been looking at an example of some costings sourced for a prospective customer and there are numerous different pricing systems being used by the different invoice finance companies that we have spoken to.It is always worth comparing selective quotes against other forms of invoice...

  • Read More

    Spot Invoice Finance

    I had a conversation the other day, with a colleague who follows my blog posts on LinkedIn, and he said "you must get loads of business from LinkedIn?", not a lot I replied - in fact I can't remember the last time someone contacted me directly via LinkedIn. Then, coincidentally, a couple of days later, I receive a request for spot invoice finance via LinkedIn!The term "spot" is more commonly...

  • Read More

    Short Term Invoice Finance

    Many companies are not aware that you can use invoice finance on a short-term basis. There are facilities available that are of an ongoing nature, for long term use, but there are also short-term invoice finance facilities that allow you to use the service for as little time as you feel you need to.Invoice finance works by releasing a proportion of the value, of your credit sales invoices,...

  • Read More

    Selective Debtor Finance From Scottish Pacific

    UPDATE SINCE PUBLICATION: SCOTTISH PACIFIC BUSINESS FINANCE TO EXIT UK MARKETI have just had an email from Scottish Pacific Business Finance which was headed “Invoice finance with a difference“. The addition to their product offering is a selective debtor finance option.The way that the product works is that you are able to select debtors against which to receive funding and bad debt...

  • Read More

    The Pros And Cons Of Selective Invoice Finance

    Selective invoice finance (SIF) has a number of pros and cons when compared with a whole turnover (WT) facility.It should be noted that there are many similarities between both SIF and WT, for example, both types of facility deliver cash flow improvements, both have credit control, bad debt protection and confidentialty options.This is an explanation of the key differences....

  • Read More

    Selective Invoice Finance For New Starts - No Minimums

    Selective invoice finance for new starts can be the most flexible option when you first launch you new start businesses. When you launch your new start you are always going to be uncertain that it will take off and that you will achieve the level of turnover that you hope for, but you may still want the benefit of funding against your invoices before they are paid, to improve your cash flow....

  • Read More

    Selective Invoice Finance Price

    This is an example of a selective invoice finance price that we found for a customer recently.With this particular client, they already had a recourse factoring facility, but they wanted to take over handling the collections (credit control) themselves. Some companies prefer to handle the credit control themselves, others choose to outsource the function.They also only had a very small borrowing...

  • Read More

    Selective Invoice Finance Fast

    This is an example of just how we can get selective invoice finance fast for a client - we can ensure a fast turnaround for you if you need help quickly.In this particular case we were contacted by a car repair body shop that was looking for a selective invoice finance facility. They contacted us on a Sunday, we introduced one of our funding partners, that specialises in car body repair shops, on...



Examples of just a few of our finance partners:

metro bank sme finance
pulse cashflow finance
woodsford tradebridge