Confidential invoice discounting for established businesses

Invoice discounting works as a revolving facility secured on your whole debtor book: you report your sales ledger to the lender, it calculates how much you can draw, and customer payments flow through an account it controls. Your own team stays responsible for invoicing and collecting.

1. Set-up audit: the lender reviews your ledger, procedures and systems, then agrees an advance rate, a limit and any concentration limits.
2. Collection account: customer payments are directed to a dedicated account, so the lender can see receipts as they arrive.
3. Regular reporting: you send sales ledger updates, often daily or weekly through a software link, plus a monthly aged debtor report and reconciliation.
4. Drawdowns: you request funds against your eligible debtors as needed.
5. Periodic audits: the lender checks that invoices, credit notes and payments match what you have reported.

Unlike factoring, the lender does not chase your customers. It relies on your systems and accurate reporting instead, which explains its higher entry criteria.

Confidentiality comes from the lender staying in the background: your invoices carry your usual details, your team handles every customer contact and customers are not told that debts have been assigned. It is a condition of the agreement, though, not a permanent right.

The lender usually keeps the right to notify customers and take over collection if certain things happen. Common triggers include:

• Missing reporting deadlines or breaching financial covenants
• Discrepancies found at an audit, such as invoices raised before goods were delivered
• A sharp deterioration in the ledger, such as a rise in overdue debts
• Signs of financial difficulty or the start of a formal insolvency process

Lenders may need to verify some invoices, so ask how they do this discreetly.

Keeping credit control means your team stays fully responsible for getting customers to pay on time. The lender expects that function to be well organised, because late payments reduce your available funding and increase your costs.

In practice, lenders usually look for:

• Written credit control procedures, including when reminders go out and when accounts are escalated
• Named staff responsible for collections, with cover for holidays and absence
• Credit checks and credit limits for new customers
• Prompt credit notes and a clear process for handling disputes
• A ledger that is reconciled regularly, with unallocated cash cleared quickly

The benefit is control. For example, a manufacturer supplying a few large distributors may prefer its own account managers to handle payment conversations, because they are tied up with pricing and future orders.

Invoice discounting lenders typically expect an established company with a sizeable, well-spread debtor book, a sound financial track record and accurate, timely management information. The exact thresholds are set by each lender.

Financial track record

Lenders look at the trend in turnover and margins and whether the balance sheet could absorb a bad debt. Persistent losses make a confidential facility harder to obtain.

Ledger quality

Lenders examine debtor days, the age profile of the ledger, the level of credit notes and disputes, and how concentrated the ledger is among a few customers. Contra accounts, where a customer is also a supplier, and sales to connected companies are usually excluded from funding.

Systems and reporting

Up-to-date accounting software, regular reconciliations and the ability to produce accurate reports on time are often essential. Some lenders set covenants, such as limits on overdue debts, and monitor them through your reporting.

People and governance

Lenders often assess the experience of the directors and finance team, and regular monthly figures from a qualified source usually help.

Invoice discounting is usually priced through a service fee based on the turnover put through the facility and a discount charge on the funds you actually draw. Audit fees, minimum annual fees, bad debt protection and exit fees may be added.

Because you run collections, the discount charge often becomes the larger part of the cost, so how much you draw, and for how long, matters most. Drawing only what you need can keep costs down, although some agreements include a fee for unused availability.

Illustrative example only: actual costs depend on the lender and your circumstances.

A distributor puts £2,400,000 of annual turnover through a confidential facility and draws an average of £250,000 across the year. The facility charges a service fee of 0.25% of turnover, a discount charge of 6% a year on funds drawn and £2,000 a year in audit fees.

• Service fee: £6,000 (0.25% of £2,400,000)
• Discount charge: £15,000 (6% of £250,000 average drawn)
• Audit fees: £2,000
• Total yearly cost: £23,000, equal to 9.2% of the average amount drawn

If the same company drew an average of £150,000 instead, the discount charge would fall to £9,000 and the total to £17,000, while the service fee and audit fees would stay the same. Model your own numbers with our invoice finance calculator.

Lenders agree a maximum facility limit, but what you can draw on any day equals your eligible debtors multiplied by the advance rate, minus any reserves. The limit is a ceiling, and your real availability moves with your ledger.

Lenders often hold reserves for customer concentration, aged debts or unusually high credit notes, so watching these figures helps you predict availability.

Some lenders also lend against stock or plant and machinery in the same facility, often called asset-based lending. Our guide on how much your company can borrow covers other sizing methods.

The main risks are losing confidentiality if terms are breached, being tied into a minimum term and personal exposure through guarantees or warranties. Check these points before you sign:

• Notification rights: exactly when the lender can tell your customers and take over collections.
• Covenants and reporting deadlines: what you must report, how often, and what happens if you are late.
• Minimum term, notice period and exit fees: what it costs to leave or move to another lender.
• Security: a debenture is common, and some lenders ask for personal guarantees or warranties that the information you report is accurate. Read our guide on what a personal guarantee is.
• Minimum fees: whether a minimum annual service fee applies if turnover falls.
• Recourse terms: when unpaid invoices drop out of funding and must be covered by you.

Invoice discounting is usually the better fit for established companies that want confidential, flexible funding tied to sales and already run credit control well. Other options may suit better in some cases:

• Invoice factoring: better if you would rather hand over collections, or if your company does not yet meet discounting criteria.
• Revolving credit facility: a draw-and-repay limit not tied to invoices, which may suit companies whose cash needs do not follow their sales ledger.
• Stock finance: funds stock before it is sold, which discounting cannot do until an invoice exists.

For a broader view of invoice-based options, including selective funding of single invoices, see our main invoice finance page.

It is usually harder than with factoring, because the lender relies on your own reporting and credit control. Some companies in these situations may still be considered, often on a disclosed basis or with a lower advance, but each lender makes its own decision.

Lenders set their own minimum trading periods, and for confidential discounting these tend to be at the longer end. Adverse credit or recent losses may lead a lender to suggest factoring or disclosed discounting first, with a confidential facility becoming possible once the company has built a track record of accurate reporting.

Invoice discounting for limited companies, LLPs and partnerships of four or more partners is generally unregulated. Consumer Credit Act protections generally do not apply, so the facility agreement sets out your rights and obligations.

Welcome Finance is not authorised or regulated by the FCA and only arranges unregulated business finance. Because discounting agreements often contain detailed reporting duties and covenants, it is especially worth reading every schedule and considering independent legal or accounting advice. Our guide on regulated vs unregulated business finance explains more.

We help you present your company to suitable lenders on our panel in the way discounting lenders assess it, and we stay with you through the audit and legal stages. Your dedicated relationship manager, a real person, is available by phone, email and chat from first enquiry until the lender pays out.

1. Check your eligibility in about 60 seconds, without affecting your credit score.
2. Your relationship manager reviews your ledger and highlights likely lender questions.
3. We approach lenders on our panel that are likely to consider your company. Lenders run their own credit checks only after you decide to apply.
4. We help you compare offers on service fees, discount charges, minimums, covenants, notification rights and exit terms.
5. We help coordinate the lender's pre-funding audit and documents through to your first drawdown.

We do not charge you a fee. The lender pays us a commission when your finance completes. You can ask how much it is, and it can differ between lenders.

How often do I need to report to the lender?

It varies, but many lenders want sales ledger updates daily or weekly and a full aged debtor report and reconciliation each month. A link to your accounting software can make much of this automatic.

What is a debtor audit?

It is a periodic review in which the lender checks that the invoices, credit notes and payments you have reported match your records and supporting documents. Lenders usually charge for audits.

Can customers find out about the facility through Companies House?

Possibly. If the lender registers security such as a debenture against your company, it appears on the public register at Companies House. Most customers never look, but confidential does not mean completely invisible.

Do my customers need to be told when I leave a confidential facility?

Usually not, if the exit is orderly and the balance is repaid from receipts or refinancing. Notification is more likely after a breach.

Can invoice discounting fund export invoices or foreign currency invoices?

Some lenders fund invoices to overseas customers and in major foreign currencies, sometimes with credit insurance. Others only fund sterling invoices to UK customers, so raise this early if you export.

Do I need bad debt protection on a discounting facility?

It is optional on most facilities. It may be worth considering if a large share of your ledger is owed by a few customers, as one failure on a recourse facility would come back to your company.

Is there a minimum facility size?

Many lenders have a minimum turnover or facility size for confidential discounting, and it varies widely. If your company is below it, factoring or disclosed discounting may be the more realistic route.

Which accounting software can connect to a discounting facility?

Many lenders connect with widely used cloud accounting packages and can accept reports from other systems. A good link reduces reporting time.