The Cash Flow Solution: How Invoice Discounting Works

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The Impact of Invoice Discounting on Cash Flow
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What is invoice discounting?

• Invoice discounting is a type of financing that
  allows businesses to receive immediate cash
  advances on their outstanding invoices.
  Businesses typically sell their invoices to a
  factoring company, which then advances the
  business up to 90 of the invoice value. The
  remaining balance is paid to the business once
  the customer pays the invoice.

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How does invoice discounting impact cash flow?

• Invoice discounting can have a significant
  positive impact on cash flow. By receiving
  immediate cash advances on their invoices,
  businesses can avoid having to wait 30, 60, or
  even 90 days to get paid. This can help
  businesses to meet their financial obligations,
  such as paying salaries and suppliers, and to
  invest in growth opportunities.

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Example of the impact of invoice discounting on
cash flow

• Consider a business with the following monthly
  sales
• Month 1 10,000
• Month 2 20,000
• Month 3 30,000

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• If the business's customers have 30-day payment
  terms, then the business will receive the
  following cash flow each month
• Month 1 0 (all of the sales from Month 1 are
  still outstanding)
• Month 2 10,000 (the sales from Month 1 are now
  paid)
• Month 3 20,000 (the sales from Month 2 are now
  paid)

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• However, if the business uses invoice
  discounting, then it can receive the following
  cash flow each month
• Month 1 9,000 (the business receives an 90
  advance on its sales from Month 1)
• Month 2 18,000 (the business receives the
  remaining 10 of its sales from Month 1, plus a
  90 advance on its sales from Month 2)
• Month 3 27,000 (the business receives the
  remaining 10 of its sales from Month 2, plus a
  90 advance on its sales from Month 3)
• As you can see, invoice discounting can help
  businesses to improve their cash flow by up to 30
  days.

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Benefits of invoice discounting for cash flow

• Improved cash flow Invoice discounting can help
  businesses to improve their cash flow by up to 30
  days.
• Reduced risk of bad debts Invoice discounting
  companies typically assume the risk of bad debts,
  which can reduce the risk to businesses.
• Increased flexibility Invoice discounting can
  give businesses more flexibility to invest in
  growth opportunities and to meet their financial
  obligations.

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Conclusion

• Invoice discounting can be a valuable tool for
  businesses of all sizes to improve their cash
  flow. If your business has outstanding invoices,
  then you should consider invoice discounting as a
  way to get paid faster and improve your financial
  health.