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Fee's on invoice discounting facilities range from around 0,1% of the amount borrowed, per day through to 0.3% of the amount borrowed per day.
What is Invoice Discounting?
Invoice discounting is a form of short-term business finance that enables businesses to borrow money from a finance provider based on the value of their unpaid invoices (hence the term ‘invoice financing’).
It works by companies selling their future income stream as an asset to the lender. This allows businesses to access funds quickly and easily if they often work with clients who have long payment terms.
Discounting vs Factoring vs Finance - What's the Difference
Nothing! Invoice discounting is the same as invoice factoring and invoice finance.
The terms are used interchangeably and you're generally going to get the same
Do you qualify?
Through FundingHub, you are likely to qualify for an invoice discounting loan if you meet the following criteria:
- An established business that actively trades and earns revenue.
- You sell goods/services to large businesses or corporates.
* Figures are for example purposes only, and may vary from business to business.
How Does Invoice Discounting Work?
The process of getting an invoice paid by an invoice discounting lender is very simple:
Step 1: You apply for finance with an invoice discounting lender. You can do so here, through FundingHub, and we’ll automatically match you with the best Invoice Discounting Lender in South Africa.
Step 2: The lender will look at your client, and quote you a fee for the invoice. You can use the calculator above to get an estimate for invoice discounting fees.
Step 3: Once you accept the contract with the lender, they will pay you up to 80% of the invoice amount. You can choose to access less cash if you only need a little bit.
Step 4: The financer then gets paid by your debtor for the full invoice amount on the agreed invoice terms.
Step 5: The financer settles the remaining portion of the invoice with you, less their fee.
How Much Does Invoice Discounting Cost?
A typical invoice discounting example:
A business is a supplier to a large corporate, like Pick 'n Pay. PnP only pays this business 90 days after their products have been delivered. The business makes a big sale to PnP ahead of the Christmas season, the invoice amount is R200 000. The invoice date is 1 December 2021.
The business needs to pay their employees bonuses, because it is year-end. They need cash. They use this invoice from PnP to get an invoice discounting facility.
Because PnP is a large corporate company, and the business applying is an established business, the finance amount quoted is cheap: 0.15% per day.
The business opts to get the maximum amount possible out of the invoice: 80%.
The lender transfers the invoice away from the business, into the lender's name. The lender pays the business R160 000 on 5 December 2021.
On 15 January, PnP settles their invoice, and pays the lender directly an amount of R200 000.
The cost of the facility is calculated below.
Days
Price per Day
Total Cost
41
160 000 x 0,15% = R240
R240 * 41 = R9840
The lender then pays the business the remainder of the invoice, less their fee:
R40 000 - R9840 = R30 160.
The total cost of finance as a percentage of the loan amount was 6.15%.
* Figures are for example purposes only, and may vary from business to business.
Factors that affect the cost of an invoice discounting facility:
As always, the cost of the facility depends on a few things:
- The amount borrowed,
- The period over which it is borrowed,
- The risk that the invoicee will not pay the invoice when it becomes due,
- The lender
Who Should Use an Invoice Discounting Facility?
Invoice discounting is perfect for small businesses that have large corporates or government municipalities as clients. These big companies often enforce long payment terms on their supplier contracts, which means cash can get locked up. This is the perfect use case for invoice factoring.
Invoice financing has been used by many businesses across multiple industries and sectors over recent years – but it is particularly popular in industries like:
- Retail,
- Construction,
- IT, and
- Wholesale
These are industries where the payment terms are typically longer than those in other sectors (for example, construction projects can often take months or even years to complete).
It can also be very useful if you’re looking to make a big purchase that your existing working capital doesn’t quite cover – like buying new equipment or making improvements to your premises.
How Does an Invoice Discounting Application Process Work?
We've designed our Invoice Discounting application process to be as fast as and easy as possible.
1
Step 1: Apply through FundingHub
One application form will mean you find invoice discounting offers from over 20 different lenders.
It's fast, and free, and fully online.
2
Step 2: Add Information and Documents
The more information we have on the invoice/invoices that you need factored the better we are able to help.
3
Step 3: View Loan Offers
We will present you with a list of all your invoice discounting offers. This takes seconds to fetch, and the list will be continually updated as you add more information to your profile.
4
Step 4: Choose an Offer
All the specifics around, pricing, fee's, speed of funds and the different lenders is laid out for you. If you have questions, we've got an independent analyst who can help you choose the right offer. Just give us a call.
5
Step 5: Finalise Application with Lender
Once you've chosen the preferred offer, the lender will reach out to you automatically. All the details from your application will be there and you won't have to apply with the lender again. It should be a matter of finalizing pricing.
6
Bonus: We're Here all the Way Through
FundingHub has got business finance consultants which you can call and ask questions from throughout your application. There are no queries or concerns that are too much. Just give us a ring.
Check your Invoice Discounting Options
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