Invoice Discounting

One of the ways of securing a small business loan in South Africa is through invoice discounting. Invoice discounting is extremely helpful for companies issuing invoices more than R 100,000 per month and with credit payment terms from 30 to under 120 days.

Invoice discounting assist the business owner in accessing funds immediately, and not wait for the credit terms to expire in 30 – 120 days. Unlike invoice factoring, with invoice discounting, the business owner is flexible in the sense that he can choose what invoice to raise finance on.

In other words, the main difference between invoice discounting and invoice factoring is the following:

  • Invoice factoring – Finance of the whole age analysis book of debtors.
  • Invoice discounting – Finance of a specific invoice to debtors.

Invoice discounting can be handled in two different ways:

1. Disclosed invoice discounting: Your client will be informed of the invoice being discounted and also confirm and validate the invoice.

Once done, the invoice discounting house will proceed with payment.

2.Undisclosed Invoice discounting: In the case that the business owner doesn’t want to disclose the finance activity to his client, the business owner would need to provide additional security to the discounting house.  It is the less advisable option in our opinion.

Some of the requirements are the following:

  • The business must trade-in a Pty Ltd (Company) or a CC (Closed Corporation) and may not be a sole proprietor.
  • The invoices must come from one business to another.
  • The turnover must be at least R 100,000 per month.
  • Credit terms may not be more than 120 days.

To assist you in making sure your Invoice factoring application is stress-free and potentially successful, we compiled a checklist for you below:

  • The latest financial statements.
  • If the business has not traded for a full fiscal year, yet the management statements for at least six months need to be provided.
  • Bank statements of the business account for the last six months.
  • Company registration documents.
  • Copies of IDs of all directors.

We trust this checklist will assist you with your finance application.