Tag Archives: single invoice discounting

Single Invoice Discounting Described in Adjectives

single invoice financeBefore 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.

Mistakes in the Use of Single Invoice Discounting

single invoice financeSID, an acronym for Single Invoice Discounting, is a one-off transaction that involves the use of a particular and selected sales invoice to raise funds for commercial use. Many businesses make use of it given its numerous advantages, however, not everyone who does do it right. Today we shall discuss these blunders and hopefully help everyone avoid committing the said crimes.

But before we proceed, let’s get to know SID even more. Also known as Selective or Spot Invoice Discounting, it allows companies to advance the value of its sales invoice by up to a percentage majority of its value before the owing customer sends in payment. This happens almost instantaneously as many providers are able to release cash within twenty four hours at the least.

In such transaction, the company chooses the invoice and then uses it as collateral. The amount of the advance received shall depend on the value of the said invoice. The company then uses the funds as it pleases and then collects from the owing customer. Once collection is completed, the company has to repay the provider for the advance it has previously taken plus fees agreed upon at the onset of the transaction.

Now that we’ve got that covered, let’s proceed to the crimes committed against SID.

Mistake #1: Mistaking it for factoring. – Discounting and factoring are two distinct financing methods despite their very similar benefits. Factoring is a sale of the right to collect against the invoice with the collection burden shouldered by the provider and not the company.

Mistake #2: Contacting the wrong provider. – It is important to transact only with trusted SID companies to ensure that things go smooth and well. This necessitates ample research and going around to narrow down choices and then end up with the best.

Mistake #3: Failing to assess the invoice beforehand. – SID providers bank on customer instead of company creditworthiness. To cut the application time, make sure that you only use of credible and creditworthy customer sales invoices. This brings us to our next item.

Mistake #4: Don’t extend credit to everyone. – To make better value for your receivables, extend credit sales only to those who are capable of fulfilling their obligations. Screen your customers first before you allow them of deferred payment options. This benefits not only your Single Invoice Discounting transaction but your cash flows, receivables ageing and liquidity as a whole.

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Single Invoice Discounting

Also known as selective invoice, spot invoice or one off invoice discounting, single invoice discounting is a form of short term borrowing that is often used to improve a company’s cash flows or increase working capital. It allows an entity to draw money against sales invoices even before its customers have actually paid what they are due. In here, a company loans a certain percentage of the value of its invoice from a third party or financing institution. Do take note that single invoice discounting is not the same as single invoice factoring. The former uses the invoice as collateral to borrow money while the latter involves selling of the receivables. Although their effects and purposes may be somewhat similar, these two are completely different and should not be interchanged.

single invoice discountingThis type of financing is best suited for companies with seasonal trading patterns, those who trade with just a single customer and also those who prefer or need to finance against a single customer only.

It is also fairly cheaper as compared to traditional discounting as no monthly fees are involved. They too are much lower as there are no annual administration fees and only one fee per invoice transacted is charged. At the same time, this transaction can be made confidential so that your clients and customers as well as suppliers will remain unaware that you are borrowing resources against the invoices even before they have been paid. The funds that you acquire here will not only increase working capital and cash flows but it will also make up for the lack of resources needed for very important projects and related expenditures. Also, it is possible for you to get hold of the cash in less than forty eight hours. And since this only deal with a single invoice, no lengthy contracts are involved so companies would not be tied up in these contracts for far longer than they plan to.

As there are advantages, there too are drawbacks in single invoice discounting. For one, it can mean a reduction in your profit margin. Also when compared to overdrafts and bank loans, they can be more costly. Second, borrowings can be associated with entities that are in financial distress. Since you are borrowing and using your invoices as collateral, others may perceive it as a sign that you are encountering problems. Ultimately, suppliers may be hesitant to extend credit to you too. Third, companies who enjoy the increase in working capital may become too dependent. This should not be the case as you must remember that you are still borrowing and interests have to be paid.