Invoice Discounting – A Solution for the Majority

Invoice discounting is a way to raise money for your business while you wait for your outstanding invoices to be settled. A finance company will lend you a sum of money against the total invoiced amount you have ‘out there’ in the business world awaiting payment, so that you can continue to trade during that time.

But what if you borrow a substantial sum from a finance company, and a major outstanding invoice is never settled? You could then be left in a position where you could owe a finance company thousands of pounds (or even hundreds of thousands), but won’t have the funds coming into your account to later repay the money.

This is an extremely difficult situation that some large UK businesses found themselves in during the credit crunch; work was carried out, a huge invoice was sent (with a footnote requesting that it be paid within, say, 28 days), but then weeks or even months passed without the invoice being settled. It all ‘went dead’.

This led to countless companies going to the wall, and having to go bankrupt as a result of being unable to meet their debts to the finance company who offered them the invoice discounting option.

As a result, finance companies who offer invoice discounting are now much more rigorous in the way they carry out checks…

Before agreeing to lend a borrower a sum of money, a finance company will undertake a kind of Risk Management process; they look for any potential weaknesses in the borrower’s ‘supply chain’ That is, they scrutinise the company accounts to check for late or non-payers in the past.

But if a non-payer is there somewhere on the client’s spreadsheet, then why would they ever do business with them again (and therefore find themselves saddled with another unsettled invoice for a second job they undertook, but again were not ultimately paid for) you might ask?

Well, established finance companies are experienced in knowing all the tricks and scams that some British businesses get up to once they have been taken to Court for not paying owed money to suppliers and service providers.

These types often simply start up a new company, providing the same type of service as before (or selling similar types of goods), but under a different name. They put fresh faces in place, new personnel to front the company. And so it is very difficult for businesses who have been ‘stung’ by them before to realise their true identity.

By the finance companies taking such measures, they themselves are protected from lending money to a borrower who may not be able to repay the sum; and in turn the borrower is protected from being in that dreadful position, or even losing their business altogether, not to mention having to face bankruptcy proceedings thereafter.

The good news is that the vast majority of UK businesses and organisations that borrow money against their unsettled invoices say how glad they are that they took the invoice discounting option; it worked for them, allowed them to survive, to continue trading, and even to go on and significantly prosper!