Companies that find themselves short on cash flow, especially large corporations, sometimes use invoice discounting lenders in the UK. Invoice discounting is one form of a short-term loan. This type of loan is given based on invoices from customers that have not yet paid, but are expected to pay. Typically, a large corporation will borrow against a percentage of their unpaid invoices, using these invoices as collateral. Since this type of loan carries a large risk, invoice discounting lenders in the UK will charge a monthly fee, plus interest on the loan.
Advantages and disadvantages
There are advantages and disadvantages to invoice discounting. UK lenders usually only cater for companies with a sales turnover greater than £500,000. This type of loan is very expensive when compared with more traditional loans from a banking institution. Once invoices are used for collateral, the company does not have the same flexibility in its ability to apply for other types of loan and many lenders will view a company with invoice discounting as a distressed business.
Lenders are very hesitant in providing loans to distressed companies. In order to no longer be a company viewed as ‘in distress’, a company that uses invoice discounting must rely solely on payment of its invoices as quickly as possible. This can be a very difficult proposition.
Invoice discounting lenders in the UK will arrange these types of loans in a confidential manner to try to avoid the appearance that a company is in any sort of financial trouble. Cash flow is improved immediately with invoice discounting and therefore, a company will immediately benefit. In addition, although the loan is expensive and the invoice discounting lenders charge monthly fees, the company pays interest only on the money borrowed.
Invoice discounting lenders with Compare The Financial Markets
Invoice discounting lenders in the UK require companies to provide regular reports on sales and cash flow in order to monitor the health of the company and its potential to pay back the loan in a reasonable time.
For more information, talk to the experts at Compare The Financial Markets.