subject: What is Invoice Discounting? [print this page] Author: Inspiration Lake Author: Inspiration Lake
Invoice Discounting can seem like a confusing thing if you don't know what it is. Once you understand it, you can see that there is nothing particularly overwhelming about it, it is a way for businesses to raise money based on invoices they have raised. Lets say a business needs to improve it's cash flow. One thing it could do is to try and go to a bank and ask for a loan. However ever since the world's money markets went into melt down in 2008 and 2009 small businesses have been less able to raise finance through banks. There is less money to lend out and banks are looking for greater security when they lend money out. Small businesses have been turning ever increasingly to Invoice Discounting. This is where a company can borrow money based on the value of it's invoices. For example, it can borrow money based on the fact that it is owed money in the future. A business can typically borrow 75%-85% of the value of it's invoices. It's a far more secure way for a business to borrow money as well as for an institution to lend money. Another benefit from Invoice Discounting is that businesses can receive money often far quicker than they may otherwise would have recieved cash if they were taking out a traditional loan. Once a company has been paid for it's outstanding invoices it can then pay back it's loan and therefore minimise the costs of interest rates. Commercial Finance always needs to be there for businesses in tough economic times as well as good times. There are businesses that rely on Invoice Discounting to imprive their company's cash flow. Businesses are of course notorious for not paying their invoices on time, in a bad economic climate this can mean disaster for a company that needs cash there are then.About the Author:
