Invoice discounting: How to get started

If you’re searching online for invoice discounting, you might relate to one of these struggles:

• You’re interested in trying invoice discounting, but in the past, providers have offered you a lower advance rate than you would have liked.
• You’ve heard about invoice discounting but have also heard about the hidden service fees that are often involved, and want to make sure you don’t get caught out by fees. 
• You feel invoice discounting is the best option for your business, but you’ve only been offered a disclosed facility in the past, and that’s not something you want to do. 
• You don’t want to do full book invoice discounting as your business has lots of smaller contracts, and want to see what your alternatives are.

In this article, we’ll look at how invoice discounting works, the top invoice finance providers in Ireland, and what to consider when choosing a provider.

We’ll cover: 

• • How invoice discounting works
  • The top invoice discounting providers in Ireland
  • What to consider when choosing an invoice discounting provider
  • Why choose Financefair for invoice discounting?
  • How a healthcare product manufacturer used Financefair’s selective invoice finance to secure another major supplier
  • How to get started with Financefair

To get started with selective or full book invoice discounting, learn about Financefair and get in touch.

How invoice discounting works

Invoice discounting (ID) is a financing tool that enables you to get an advance on your invoices. It allows you to use your existing contracts as general working capital, giving you quick access to cash without the long-term commitment of a business loan.

You may have heard different terms used to describe this type of funding. Invoice discounting and invoice financing are the same concept.

There are two types of invoice discounting facilities: 

1. Undisclosed or confidential: This means your customers aren’t aware that you’re using ID. It’s done discreetly, meaning you’ll handle your own invoices and be responsible for collecting payments from your customers. Some businesses prefer this option, seeing it as better for managing customer relationships.
2. Disclosed or non-confidential: With this type of ID, your customers will know it’s happening – there will be no confidential invoices. A funding provider may choose to impose disclosed ID on your company depending on their perceived risk.

A common form of disclosed financing is ‘invoice factoring’. With invoice factoring, the funding provider will take an intensive operational role in the business. They’ll be in touch regularly and will essentially step in and take over the credit control. Your customer will pay their invoice payments directly to the invoice factoring provider. Invoice factoring is often advertised for specific businesses (such as with recruitment financing products).

Here’s how invoice discounting works in practice:

1. You raise an invoice.
2. The invoice discounting provider sends you the pre-agreed advance amount. This will be a percentage of the invoice total (for example, 90% of the invoice value).
3. Once the number of days to pay have elapsed (e.g. net 30, net 60, etc), your customer then pays the invoice into a separate funding account that’s managed by the invoice discounting provider. If the facility is disclosed, your customer will know this belongs to the funding provider. If it’s undisclosed, they will assume they are paying you as normal. 
4. After the payment is complete, the funding provider will send you the remainder of the invoice amount minus any applicable fee.

The top invoice discounting providers in Ireland

If you’re looking for an invoice discounting provider in Ireland, the options are:

• Close Brothers: Offers full book invoice discounting and invoice factoring. You can access up to 90% of the value of invoices raised.¹
• Bibby: Offers full book invoice discounting and invoice factoring. You can access up to 100% of the value of invoices raised.²
• AIB: Offers full book invoice discounting. You can access up to 85% of the value of invoices raised, and you’re able to manage your facility online.³
• Bank of Ireland: Offers full book invoice discounting. You can access up to 85% of the value of invoices raised, usually for invoices outstanding up to 90 days.₄
• Financefair: You can choose from selective or full book ID and access up to 90% of the value of invoices raised. The facility is managed completely online, and when you’re approved, your funding will be in your bank account within 24 hours. Financefair’s pricing model is transparent, with only three agreed fees (find out more below).

The providers above offer a mix of disclosed and undisclosed ID based on your perceived risk and preferences. The banks usually offer disclosed facilities. Financefair offers undisclosed invoice financing, meaning your customers won’t be aware you’re using ID.

What to consider when choosing an invoice discounting provider

There are a few things to keep in mind when you’re choosing an invoice discounting provider:

• The advance rate: Consider what advance rate you need – in other words, what percentage of the invoice do you want an advance on. While you may be relieved to have been approved for funding with a provider, if the advance rate is too low (e.g. 65%), you might not have access to the immediate cash flow that is needed to help you grow your business. Make sure the provider you choose offers a rate that’s aligned with your business objectives and allows you to unlock the capital you need to grow. For example, Financefair offers up to 90%.
• Cost: Many providers have hidden costs, so it’s important to calculate the true cost of ID rather than just going off the headline rate. With Financefair, the costs are: 
• The annual platform fee: This is a fixed fee and is charged based on the facility limit provided.
• Monthly facility fee: This fee is charged on the facility limit provided.
• Discount charge: This varies depending on your credit score. The higher your credit score, the higher the discount (and therefore the lower your fee will be). The fee applies to the amount of funding used in any 30-day period.

Our all-in cost of funding through our platform typically ranges from 0.75% to 1.50% per 30 days, depending on the product type, term, credit quality and a number of other factors. Here are some examples of what an ID facility with Financefair might cost:

Try the calculator on our invoice discounting page to see the cost for your business.  

1. Do you want full book ID or selective? Full book ID is where you raise all of your invoices. This is cheaper than selective ID, but it can be operationally intensive. Selective invoice discounting is more expensive but allows you to choose selected invoices and ignore smaller contracts. This can be easier to manage. Financefair is currently the only provider of selective invoice financing in Ireland. 
2. The type of debtors you have. If your revenue is non-contracted revenue or from subscriptions, then ID might not be the best fit when compared with other options like revenue based financing or line of credit, for example.

Unsure of the right financing for your business? Get in touch with our team. 

Why choose Financefair for invoice discounting?

There are several benefits to using Financefair for your invoice discounting: 

You can choose selective invoice financing if you don’t want to finance your whole debtor book

We’re the only provider in Ireland that can offer you the option of choosing either selective invoice financing or full book. Managing full book ID is operationally more intensive, and many businesses prefer selective invoicing for its simplicity. 

Here’s an example of a situation where selective ID makes more sense than full book: 

• Let’s say you’re an SME with a customer book of 30 accounts.
• 10 of those customers make up the largest portion of your revenue every month. 
• The other 20 customers make up a smaller amount of your revenue each month.

In this situation, doing full book ID would be much more operationally intensive than selective, without a significant advantage. You’d have to raise 30 invoices, even though you really only need to raise 10 invoices from your largest customers to achieve the level of funding you need. Selective invoice financing allows you to only raise those 10 invoices, saving you admin time. There’s also no tie-in, so you can use your facility as and when you need to.

You’re eligible for our invoice discounting facility if:

• You’re a limited company with at least two directors
• You’ve been trading for at least three years
• Your minimum annual turnover is €3m
• Your average debtor book is at least €500,000

At Financefair, we can finance single invoices from €30,000 and provide up to €5m in annual funding if your company meets our criteria.

Learn more about it here: Financefair Selective Invoice Finance

Access the right amount of funding at all times with the right model (and save time on admin)

After your initial funding has been approved, we’ll work with you to regularly review your funding and make sure you have the best funding option for your business.

As well as invoice discounting, we also offer other business financing solutions, including:

• Revenue based finance: Converts up to 20% of your future annual recurring revenue to give you access to upfront capital. 
• Line of credit: Works in a similar way to an overdraft, and gives you access to up to €250,000 instant working capital that you can draw on when you need it.

Before getting started, we’ll speak with you to understand your business needs and use data analytics to get an accurate understanding of your circumstances and funding requirements. Based on our team’s decades of financial services experience and industry knowledge, we’ll make sure you have the best funding model for your business and needs.

Many invoice discounting companies will require you to upload information at a specific time every morning and upload bank statements weekly, creating a lot of admin work and a drain on resources. 

With Financefair’s platform and data analytics, we can fund your account automatically – saving you and your team time and energy. 

Access future growth funding through our platform

At Financefair, we value our customer relationships and want to see you grow your company. So as well as discussing your immediate needs, we’ll also talk about your plans for future growth. We can help ensure you’re using the right financing option for you – whether that’s invoice discounting, revenue based financing, or line of credit. 

Here are the benefits of using Financefair for your business financing:

• Our funding limits are flexible: We know working capital can ebb and flow. Say you have revenue based financing and have a quieter month than expected with less revenue coming in. Instead of just stopping your funding, we can talk about reducing it. 
• You aren’t required to give a personal guarantee: This means you don’t need to put your personal assets, like your home, at risk. 
• We don’t need you to have blue-chip debtors: If you have a subscription or recurring revenue model, it can be tricky to get funding from banks, who often want you to have blue-chip debtors. Financefair can fund these different business models as long as you meet our criteria. 

How a healthcare product manufacturer used Financefair’s selective invoice finance to secure another major supplier

A manufacturer of healthcare products was looking to branch out into Europe. 

They already worked with four key customers which were healthcare product suppliers that supply their products to the majority of hospitals in Ireland and the UK. They needed to win a fifth customer to grow into the continent.

Although they won the project with the fifth customer, they needed the funding to buy the stock to fulfill the contract.

That’s when they reached out to Financefair.

We spent the time understanding their business and deciding on which funding option would work best for them. We agreed that selective invoice financing would be the best fit for their needs.

With selective invoice financing, the healthcare company was able to get an advance on two of their current customer invoices, and use that funding to buy stock to fulfil the fifth supplier. 

The healthcare company had to act fast. Fortunately, selective invoice financing is a frictionless process with a quick lead time. All the business needed to do when the facility was set up was to upload two invoices to the platform. Within 24 hours, the company had the capital needed to buy the stock for the fifth contract.

Want a separate example of how selective invoicing can help a business grow? Check out our case study on how an Electrical, Mechanical and Civil Engineering company leveraged their approved worksheets to grow across Europe.

How to get started with Financefair

Getting started with Financefair for both selective and full book invoice discounting is easy:

1. Apply: To start the funding application process, you can:
   1. Contact us directly to discuss your funding requirements. One of our team can then indicate if we can provide funding for your business. Call +35315252486, email busdev@financefair.com, or book an appointment with one of the team.
   2. Complete a funding application form, which takes less than 5 minutes.
2. Offer: Within 24 hours, you’ll get an indicative offer.
3. Onboard: If you accept the offer, our team will onboard you onto the platform and run the necessary KYC and AML identity checks. 
4. Funding: When your facility is in place, funding will be in your bank account within 24 hours.

Unlock the capital in your outstanding invoices with Financefair invoice discounting 

In this article, we’ve looked at how invoice discounting works, who the top providers in Ireland are and what to take into account when choosing a provider. We’ve also shared some real-life examples to show how invoice discounting allowed growing businesses to achieve their goals. 

If you want the flexibility of choosing how many of your invoices to finance, or you want to work with a provider that cares about helping you to grow and will make sure your funding options align with your goals, reach out to us to start the conversation. 

Sources:

1. https://www.closeinvoice.co.uk/invoice-discounting
2. https://www.bibbyfinancialservices.com/funding/invoice-finance-products/invoice-discounting
3. https://aib.ie/business/loans-and-finance/finance/invoice-finance
4. https://businessbanking.bankofireland.com/credit/finance/invoice-finance/how-does-it-work/