Key Advantages and Disadvantages of Invoice Discounting2018-12-10T05:21:38+00:00

Advantages of Invoice Discounting

Quick cash

tim. Invoice discounting is comparatively quicker and faster method to procure cash than applying for a loan in which credit institutions or banks take quite a lot of time in credit appraisal of the borrower. Invoice discounting provides liquid cash to business as soon as an invoice is issued. It accelerates cash inflow by converting sales receivables into cash. The cash injection can be invested in increasing sales, pursuing growth, capital investment, repaying critical debts etc.

Releases locked cash

Invoice discounting releases cash that has been locked in customer invoices for a long period of time. Invoice discounting converts the company’s account receivable (debtors) into liquid cash. This may even be used in cases of emergencies.

Reduced collection period

Collection period refers to the time taken by accounts receivables to realize into liquid cash. The collection period is generally the credit period allowed. Invoice discounting facilitates the provision of finances by taking an advance from the invoices issued. Thus, a businessman may collect his blocked funds without waiting for the entire credit period against a fee.

Improves cash flow

Invoice discounting provides improved cash flow since up to 85% of the advance invoice amount (receivable) can be converted into cash thereby aiding shorter working capital cycles.

No asset as collateral

Cash can be obtained without using any assets as collateral; only invoices to which customers are yet to pay are submitted for the transaction. Financiers require just account receivables as collateral. No inventory, property or other movable item is pledged. Hence, entities which have a large amount of pending receivables can release the funds quickly and hassle free.

No effect on business relations

tim. The business relations between the seller and buyer are not hampered in case of invoice discounting. Discounting companies have no or very little contact or correspondence with the buyer. Hence, the buyer is sure that he would continue to be liable to the seller, not to other parties.

Allows more room for credit sales

The company can choose to grow sales in terms of cash or credit. Sales that are on credit can be converted into cash quickly and the company need not bother much about the liquidity issue which comes with credit sales if invoice discounting process is in place.


The seller continues to exercise control over the sales receivables. He has the sole right to manage the credit terms, negotiate further deals, collect the payments etc.


In the case of invoice discounting, confidentiality can be maintained by the discounting houses. The suppliers and customers need not know about the borrowings of the company against sales invoices. The agreement between the financier and you/your business is not disclosed to your customers.

Win-win situation for business

The borrowing company can obtain the cash it needs whereas the customer can be given the credit period. This creates a win-win situation for the company and the company’s customer which in turn helps in building a healthy relationship with customers.

Disadvantages of Invoice Discounting

Decrease in profit margins

tim.The financial institution providing invoice discounting generally charge a fee which becomes a cost to the company (a discount on the face value of the invoice issued). This decreases the profit margin for the borrowing company, but its important to bear in mind that the discount fee charged is small and only charged when invoices are discounts, unlike a loan where interest is charged on an ongoing basis irrespective.

People’s perception

Some people perceive invoice discounting as a stigma over the company, hence, excessive reliance on invoice discounting may not be taken very positively by all stakeholders.

Only commercial invoices

Invoice discounting can only be offered on commercial invoices. If a company deals with general public (the consumer) then that company will not be eligible for invoice discounting.

Need Business Funding?

Fill out the form below to see how much capital you can raise with tim. It will only take a few seconds & will not affect your credit rating.

Related Links

Our Customers Have
Rated Us “Great”

Extremely great service

The personal service & inter-action was extremely gratifying, as a result we were able to do business, which has put our company in a very positive position, I can't speak highly enough of these professionals and would do business with them again, definitely recommend the great service they provide to anyone.

Boy Wetini

Excellent and Professional

We were experiencing a cash flow issue due to rapid expansion in our business. We dealt with TIM and all the lovely staff were so helpful and within a short amount of time we were able to solve our issues and resolve our cash flow. I would definitely use TIM again if needed without hesitation. I would also recommend them without any doubt to anyone in need of their services.

Clarah Nel

Make cash flow management easy by aligning your accounting software to timEX.
tim’s accounting interface is quick to activate and helps to manage money and pay suppliers.