Before committing to a certain type of financing, we need to be doubly sure that they work to our advantage. Because why do it otherwise? This is why we need to do meticulous research and analysis to end up with a method that suits us best and if you’re reading this then congratulations. You’re on the right track. With that said we begin by getting to know a method that has been gaining wide traction: single invoice discounting.
Invoice discounting is what it says it is. It works by advancing the value of sales invoices, or accounts receivables, prior to their maturity in exchange of a discounted amount, the total invoice value less fee. That definition is pretty straightforward and self-explanatory but for the sake of discussion, allow us to further expound by describing it using the following adjectives.
• FAST – Cash can be released in as fast as twenty-four hours from application. This is only available in one other type of financing called invoice factoring, this method’s one and only sibling.
• EXPEDITED – In essence, it acts to hasten the collection on sales invoices or receivables which pertain to goods and/or services rendered but not paid. It cuts through waiting time so businesses no longer have to wait for the maturity date. This helps not only in expediting the collection process but also in improving liquidity as it makes resources immediately available for use. This in turn helps better cash flows, strengthen working capital and provide for immediate operational needs.
• NON-RESTRICTIVE – The funds received in an invoice discounting arrangement are not restricted so businesses can use them in whichever and however they want. This liberty and flexibility also translates to their users. The method can be utilized not merely by established businesses or those deemed to have proven their adequacy in assets. They are available even to recovering entities, startups and small to medium scale enterprises. Why? The next item on the list should explain it.
• DEBT-FREE – The advance signifies an asset transaction where the invoice is merely used to determine the value of the cash advance and as a form of security held by the provider. Discounting in itself does not categorize as a loan because it is an asset transaction.
• COST EFFECTIVE – Invoice discounting, compared to other financing options, is significantly more affordable. Since it doesn’t pass up as debt, it does not have recurring interest fees but instead a fixed one stipulated at the onset of the transaction.