nvoice discounting is a form of cash flow finance; it allows you to effectively assign (sell) your unpaid invoices to the discounter.
It is a great way of turning your unpaid invoices into cash.
It is not unusual for a business to regard unpaid invoices as a problem. This can be true but they are an asset of the business and sometimes one of its most under-utilised.
With cash flow finance, the problem of unpaid invoices can be turned into an asset – that is cash in your bank account.
Invoice discounting provides immediate funds for business growth: furthermore it allows your management to concentrate on the core activities of running the business.
How it works
- We will agree which invoices will be covered for discounting
- You transact the sale or provide the commercial service (as per your normal business)
- The invoice is submitted to the client for payment
- You provide ACM a copy of the invoice and we pay you an agreed amount: this will be slightly less than the face value of the invoice
- At the point it time the client pays the invoice, it is paid directly into the ACM account
It is a simple process. By improving your cash flow you maintain better control over your business.
Which business will qualify for Invoice Discounting?
Invoice discounting is not for everyone. The key qualification criteria for financial supply will be:
- A business with annual turnover above $300K
- In the interest of immediate cash flow, you must be prepared to ‘assign’ your invoice for a lower than face value amount
- Invoices must be for goods or services which have been fully delivered/completed
- Invoices must be legitimate and open to ACM validation, if this is deemed necessary
- Invoices in dispute are not eligible for financing
- Invoices which are older than 90 days are not eligible for financing [See below: Final Comments]
What are the costs
There are 3 fees for you to consider:
- Payment Net Value
- Admin Fee
- Discount fee
1. Payment Net Value
The upfront payment net value – that is, the money we pay to you is typically the face value of the original sales invoice less 17.5% .
Example: invoice value of $100 …less 17.5%, equals $82.50
cost to client = $17.50
2. Admin Fee
The admin fee contributes to the base establishment and clerical costs. It is just 1%.
Example: invoice value of $100 …with admin costs of 1%
cost to client = $1.00
3. Discount Charge
The discount charge is calculated daily on the actual amount of funds drawn from your facility. ACM is arranging the cash flow finance and as discounter earns this discount fee; this is a daily charge based on your use of funds (similar to interest) on the upfront payment until the debt is paid.
Example: For the upfront payment value of $82.50 assume, say, the amount was paid in 68 days… a discount fee of $2.25 is applied.
Cost to client = $2.25
When the $100 (being the value of the original sale invoice) is finally collected from the client’s customer, ACM (as the discounter) makes available to the client the $100 amount less the $82.50 Upfront Payment, less the $1.00 Admin Fee and the $2.25 Discount Fee.
|Original Invoice Value||$100.00|
|Net Payment to the client||$79.25|
|Total cost of discounting to client||$20.75|
Final Comments: Discounting with Recourse
ACM conducts invoice discounting on a ‘recourse basis’. This means:
- The assignor (client) and ACM (discounter) enter into an agreement whereby, for the term of the agreement, the assignor offers its transactions (that is, sales due for invoicing) to the discounter
- ACM as the discounter has the discretion to accept or reject the offer: specifically ACM has the discretion to reject any particular client and invoice if it does not meet its set criteria
- Once accepted ACM as the discounter determines the availability for funding based on the value of debts purchased and their classification
- Funding is then made available and drawn by the assignor – against each approved invoice
- In time the payment made, by the end customer on the original invoice, will be made and paid directly into the ACM bank account
- ACM runs a progressive balance ID assignor account (for each client) and remits funds to you as the client, at the end of each month
- Any debts however which are past due 90 days are returned to the assignor and the assignor’s progressive ID balance will be adjusted on their ID account.
Talk to us today about Invoice Discounting. We provide our services in Adelaide, Melbourne and Darwin. Enquire online or call us on 1800 004 211 to discuss your options.
Once we have your inquiry we will make contact and scope the opportunity with you. If it is the right solution we can set an arrangement to assist your organisation.