Mastering Invoice Discount Examples for Marketing Success

On invoice discount example for Marketing

welcome to the cash dream Financial video an introduction to invoice discounting my name is Tim Lee and I'm the CEO and founder of Cash dream Financial I am also the co-author of a book about factoring in the bus discounting which was published in the UK this video is part of a series of videos relating to commercial Finance which are available to view in the learning center of our website cashstream.com.edu so let's get started what exactly is invoice discounting divorce discounting is called many things for example cash flow Finance data finance and invoice Finance it has developed out of the factoring industry by providing the key financial benefits of factoring in other words the finance that grows for your business but without the disclosure of the lender's involvement being seen by your customers essentially invoice discounting provides Finance against business to business invoices without your customers being aware of the lender's involvement so how does it work essentially a must discounting is very simple a company raises its invoices to its customers in a normal way details of those invoices are sent to the financier after assessing the invoices up to 90 percent of the value of the invoices is made available on day one the customer then pays the invoice Discounter via a trust account the invoice Discounter then Returns the remaining 10 percent of the invoice values back to the customer unless they're charges of course it's almost as if a company borrows its own money so let's look at the facilities available in the marketplace facilities available depend upon the risks of your business and the quality of the security being offered in other words the nature of your invoices the greater the perceived risk the more likely the facility will be on a disclosed basis in other words your customers will know the invoice Discounter is involved now as risks reduce primarily through good profitability so confidential facilities become more likely there is actually a halfway house called confidential factoring where the invoice Discounter runs a parallel sales ledger to the client company finally there's a relatively new entrant into the Australian Marketplace called asset-base lending where additional assets are also funded for example plants and Equipment property and inventory you may want to go to our Learning Center to look at our video on asset-based lending for more details on this facility so how does invoice discounting fit strategically into a company's financing plans invoice discounting is more suited to established companies that have developed good quality operational and financial systems an invoice Discounter is going to want to know that you are able to troll your business in the collection of your invoices which represents the security so if you've been through the early stages of growth and through the pain and instability associated with that growth and you have developed good quality operational and financial systems invoice discounting will be more appropriate for you okay let's look at the other options available for expansion and compare them to invoice discounting any expanding company needs additional working capital to fund stock wages overheads Etc and the faster the growth the more working capital is required so what are the alternatives well you can have a look at Equity maybe you have some savings to put into your business the question is do you want it especially given the uncertain market conditions and also the credit crunch you can look at external Equity but of course this means giving up a percentage of your business the alternative is you could look towards offering additional security to your Bankers to increase the overdraft question is do you have additional security and indeed do you want to pledge that additional security all the above facilities are equally valid and it depends upon your own risk profile one thing to bear in mind is that in terms of uncertainty best practice usually suggests keeping some powder dry just in case and the other thing to bear in mind is it's easier and cheaper to raise debt when you're not desperate for it so let's see how invoice discounting compares to a bank overdrop Bank overdrafts by their very nature are fixed usually against the fixed asset usually real estate but growing companies need additional capital so what you might notice is your Bank overdraft limit gets hit regularly you get those phone calls from the bank manager often there is a core level of borrowing that is being seen usually very close to the overdraft limit with invoice discounting on the other hand as soon as you raise invoices you get cash up to 90 of the face value of the invoices usually within 24 hours so the more you sell the more your Finance facility grows with you of course the opposite occurs if your sales Fall so a little Caution is sometimes required it is usually best practice to have some form of working overdraft facility just in case the beauty of invoice discounting is that unlike bank overdrafts one you generally don't have to put up Real Estate Security to support the facility although you need to be aware of personal guarantee will be required mainly to cover fraud two funding is against your current sales performance and not your historic balance sheets and finally the level of Finance grows directly in line with your sales