Receivables Discounting | The 2024 Guide for Buyers and Sellers

What is Receivables Discounting?

Receivables discounting is a type of asset financing which involves obtaining a short term loan against accounts receivable. It is first important to understand what a receivable looks like and the reason that this type of funding is subsequently used.

Receivables discounting can be used for many reasons. This type of financing is frequently used to help growing businesses access capital secured against invoices. Receivables discounting can help prevent companies running into working capital complications.

What is a receivable and what is receivables discounting?

A receivable is a promise of future incoming value into a company. This may be monetary worth or something else of capital worth. It is important to note that it is a future defined value flowing to the business and is not received at the point that a transaction is made. At its most basic form, this will be an invoice that is submitted to an end buyer when a product is purchased. The reason that the goods are not paid for on purchase is due to the end buyer being provided with credit days from the supplier. This attracts buyers to work with sellers, as they will have a period of time in which to provide payment. The reasons for these ‘credit terms’ may be varied; it will assist with the cash flow of the ultimate buyer, will allow an element of sell through of the stock prior to payment and will permit flexibility of the purchaser. This may also be a deciding factor for the purchaser; of who the supplier will be.

The concept of having credit terms is used to attract the end buyer. In the event that no credit terms are provided; payment is received at the point of delivery or pick up of the product.

Diagram - Receivables Discounting

Why is providing credit terms a problem?

The cash flow of a business is of central importance, as it allows expansion and forward momentum. In order to grow, there is always a need for finance and so providing long term credit days can make expansion a difficult process. In effect, providing credit terms may starve the business of finance.

How can receivables discounting work to provide credit terms to a business?

Receivables discounting (also known as receivables factoring) is a mechanism in which finance is provided against receivables; such as invoices. The typical way this will happen is for 75-90% of funding to be provided against the invoice value. In terms of chronology, at its most basic form an invoice is sent out to the end buyer; this is acknowledged and assigned in favour of the funder and a percentage of funding is advanced against it. When payment is made to the lender at the defined time; usually within 30, 60 or 90 days, the funder will deduct their fees and the amount lent or advanced. Any remaining funds are paid back to the borrower.

The process above is called receivables discounting or invoice finance. There are many other terms for it but at its most basic; funds are provided towards against an incoming receivable or invoice.

Download our receivables discounting infographic

Want to find out more about invoice finance? Check out our handy infographic – a comprehensive guide which defines invoice discounting, factoring, as well as the differences between the two!

Summary

Case study: Wholesaler of soybean produce

Company X is exporting soybeans to the UK from Peru. The soybeans are stored in a warehouse in the UK until the customer wishes to buy the produce. A receivables discounting agreement would be used to enable Company X to receive funds once the end customer is sent an invoice and a funder agrees to discount the invoice (paying Company X on 30-90 day terms).

Invoice and Receivables Finance Hub

Speak to our trade finance team

Latest News

17May

Factoring and supply chain finance in the shadow of the Areni-1 cave: EBRD’s insights from Yerevan

0 Comments

The EBRD TFP conference gathered industry leaders to discuss evolution of factoring and supply chain finance in emerging markets…. Read More →

03Apr

PODCAST | FCI’s Neal Harm on kicking off inclusive growth in the factoring industry

0 Comments

To better understand the principles of financial inclusion, equitable regulation, and sustainable growth in the factoring industry, Trade Finance Global’s… Read More →

11Mar

Bridging the gap: The transformative potential of factoring in Africa

0 Comments

Factoring in Africa allows businesses to sell their accounts receivable at a discount to gain immediate cash flow, is gaining… Read More →

16Jan

PODCAST | Year ahead: Swift CIO on balancing uneven payments regulation and advancing CBDC

0 Comments

2024 is set to bring about significant changes in finance and banking. Driven by a convergence of cutting-edge technologies, the… Read More →

11Jan

Switching the Pound for the Peso: Three reasons why you should consider settling invoices in local currencies

0 Comments

While it comes with many business benefits, engaging in trade with nations around the world can be a complex process…. Read More →

30Oct

FCI scores hat-trick in Marrakesh: A giant leap for factoring

0 Comments

FCI, the global representative body for the factoring and receivables finance industry, has achieved a significant milestone by securing three… Read More →

09Oct

A common credit insurance hub: The solution to streamline credit insurance?

0 Comments

How could a common platform fluidify and modernise credit insurance operations and provide greater value to the industry?… Read More →

14Sep

ISO 20022: A game changer for Canadian corporations

0 Comments

The success and efficiency of Canadian corporations is integral to the well-being of our economy. … Read More →

26May

Global invoice factoring market poised for exponential growth by 2032

0 Comments

The Brainy Insights, a market intelligence firm, has projected that the global invoice factoring market, valued at $2.74 trillion in… Read More →

16May

PODCAST | Breaking: First cross-border factoring facility between Armenia and Georgia supported by EBRD

0 Comments

During the European Bank for Reconstruction and Development’s (EBRD) 32nd Annual Meeting and Business Forum in Samarkand, Uzbekistan, TFG spoke… Read More →

03May

PODCAST | Factoring in the UAE: Developments and global implications

0 Comments

To break down the intricacies of factoring and to provide an overview of the UAE law, Trade Finance Global (TFG)… Read More →

20Apr

Evolution of electronic invoicing: watch for the explosive growth

0 Comments

The dematerialisation of invoices and other supply chain documents is set for rapid growth. Most importantly the B2B market can… Read More →

21Nov

VIDEO | Visa: the highs and lows of B2B payments

0 Comments

To learn more about the cross-border B2B payments landscape, Trade Finance Global (TFG) interviewed Ben Ellis, global head of Visa… Read More →

12Oct

Bill discounting vs. invoice factoring – what’s the difference?

0 Comments

Both ‘bill discounting’ and ‘invoice factoring’ are types of financial instruments that are used to provide working capital to businesses… Read More →

07Oct

Driving sustainability in global trade with digital collaboration

0 Comments

ESG may be front-of-mind, but how can the wider implications of sustainability help different areas of trade?
While the… Read More →

11Aug

World of Open Account (WOA) cofounders on the changing face of receivables finance

0 Comments

TFG’s Annie Kovacevic sat down with World of Open Account (WOA) cofounders John Brehcist and Erik Timmermans. … Read More →

28Jul

What is structured trade finance (STF)?

0 Comments

Structured trade finance is a type of debt finance that structures trade finance products from across the supply chain together…. Read More →

27Jul

Is the time ripe for the formation of a global receivable exchange?

0 Comments

In 2019, FCI formed a working group called “Receivables as an Investable Asset Class” (RIAC). It was comprised of FCI… Read More →

20Jul

SME appetite for trade finance

0 Comments

Trade Finance Global surveyed firms throughout Europe to gain an understanding of SMEs’ trade finance usage norms and their propensity… Read More →

20Jul

Podcast: FCI – why the factoring industry is experiencing a boom

0 Comments

TFG spoke to one of the world’s largest factoring associations to find out how trade receivables can help solve the… Read More →

19Jul

Debt vs. equity finance: how do European SMEs use third-party financing?

0 Comments

Trade Finance Global (TFG) surveyed firms throughout Europe to gain an understanding of SMEs’ trade finance usage norms and their… Read More →

11Apr

City Week exclusive: Bob Wigley on UK SME lending in 2022

0 Comments

Deepesh Patel (DP), Editor, Trade Finance Global interviewed Bob Wigley (BW), Chair of UK Finance, to discuss SME lending, our… Read More →

26Jan

VIDEO: Factoring strikes back – FCI’s Aysen Çetintas on expanding trade finance education after COVID-19

0 Comments

In 2020 the global factoring industry saw a 6.5% drop in volume – its largest one-year decline on record. … Read More →

18Jan

Explained: How these 5 trade finance instruments can help your business grow in 2022

0 Comments

Letters of credit, forfaiting, factoring, export finance, and trade credit insurance: the most popular trade finance techniques companies are using… Read More →

31Dec

2021 – A Year in Review with Trade Finance Global

0 Comments

As the clocks struck midnight, we looked back at over 700 articles, handpicking our favourite stories that made the headlines… Read More →

03Nov

Do you export? Take part in our access to finance survey

0 Comments

Please enter our Access to Finance Survey, and you’ll also be entered into our prizedraw and have the chance to… Read More →

29Oct

South Africa’s Standard Bank chooses Flutterwave for Africa digitalisation drive

0 Comments

South Africa’s Standard Bank has launched a new digital payments partnership with Africa-based fintech Flutterwave. Under the terms of the… Read More →

26Oct

BNP Paribas executes green repurchase agreement (repo) with EDF

0 Comments

French international bank BNP Paribas has executed a green repurchase agreement (repo) transaction with state-owned utility company Électricité de France… Read More →

20Oct