Each and every financing option comes with its set of strengths. True, there may be no one size fits all solution but there’s one that’s bound to complement our needs best. It just takes adequate research to get to the bottom of things starting off with single invoice discounting.
Now a lot of people or even businesses may find it new to their ears but don’t be fooled. This financing method has been in use and very much so by entities all over the world for a good number of years.
An option under the receivables finance method, it allows a business to choose a particular sales invoice with its value to be advanced. In other words, the cash associated to it shall be received prior to its maturity and provided by a financial institution. In exchange, a minimal fee shall be paid by the business.
Still confused? Let’s tackle it in even more detail.
Step1: The company chooses an invoice to discount.
Step 2: The provider shall assess the invoice and if it passes the requirements shall process the release of the cash advance.
Step 3: The company receives the cash and uses it as desired. The invoice by this time shall be presented to the provider as a security or guarantee.
Step 4: As the invoice matures, the company collects the payment from its owing customer.
Step 5: It then goes on to pay the financial institution for the advance taken plus a fee.
That’s as simple as it gets. But there’s more to single invoice discounting that merely its simple and streamlined process. It’s got quite the benefits that pack a punch and would make any entity want to consider it.
First of all, it’s no debt. The transaction does not fall under a liability and therefore does not involve any interests and collateral. It’s an asset transaction.
Second, it’s pretty fast compared to other financing methods. It can be processed and cash can be released in a matter of twenty four hours.
Third, it helps hasten collections. The advance pertains to the value of the invoice that is yet to be received in cash at a much later date. With a single invoice discounting arrangement, the process is hastened which makes the company more liquid and releases cash locked up within invoices. This also helps strengthen working capital which is good news for any entrepreneur.