Why successful businesses use invoice discounting

Generating consistent income is a real challenge with low business confidence in the economy, greater competition, less loyalty and price cutting all having an adverse effect on revenues.

As a result, many businesses face an uncertain future not knowing whether they have the funds to pay their taxes, bills or worse — payroll. This is one good reason why plenty of companies are looking to solutions such as invoice discounting.

A small business, in particular, must have consistent cash to survive or else every time customers do not pay on time, their bills also begin to pile up in the process.

There are many options to consider in trying to overcome or conquer these challenges and invoice discounting is one.

Invoice discounting has become an increasingly popular way of generating working capital to meet day to operating expenses as well as fund growth. No longer is it considered a facility of last resort, it is now considered a genuine alternative to bank overdraft.

Many research studies show that over 80 per cent of business failures happen as a result of insufficient or lack of cash. The business may even appear to be growing, but if cash is tied up in invoices that have not been paid, then their creditors and employees cannot be paid.

Without invoice discounting, doing business with customers who wait 60-90 days to pay an invoice can be devastating.

The reality is that most SMEs need consistent cash. It is important to pay bills on time to maintain their credit rating. They must also pay salaries and taxes on time.

With invoice discounting, a company can usually achieve this. When an SME is fortunate enough to receive a big order from a customer that requires additional funds for supplies, materials or production costs, there may not be time to wait for the lengthy approval process required by most banks.

What's more, traditional loans from banks are sometime not a very practical option for small businesses, particularly businesses that have been operating for a short period of time or more established businesses that have been struggling.

That's why more and more small businesses are turning to invoice discounting. They fell it is much more flexible than a bank overdraft, much more accessible and a facility that will not only see them through some short term difficulties but will help them grow their business.