There are two purposes of Scottish invoice discounting. Firstly, it allows the customer to take a discount off their invoice’s total amount. Secondly, it enables a business to draw out money against its accounts receivables. Essentially, invoice discounting is a way for companies in Scotland to borrow on a short-term basis, allowing a company to have increased cash flow and draw further capital from the business.
Scottish invoice discounting works whereby a company can borrow a percentage of the value of its own accounts receivables. The report of these accounts receivable is segmented into columns representing time, for example, present customers, 30 days past due and so on. It is important for businesses wishing to borrow this way that most of their customers are listed in the ‘present’ column. This is achieved by offering customers a discount if they make sure that their invoice is paid within a specified date, typically stated in the terms of agreement when the customer makes their initial dealings with the company.
A company’s unpaid accounts receivables are employed in Scottish invoice discounting as collateral, and it is important that accounts are as clean as possible. The business receives cash from the unpaid invoices, which improves its financial position and repays interest to the financial institution on any funds it borrows.
Scottish invoice discounting is employed in most companies offering a discount in their sales terms. In the main, commercial customers are made an offer of terms that take the discount option into account. This can make for an incredibly smart policy for both the company and the customer. When a customer pays less than expected for a product and comes away satisfied with the level of service provided, they are more likely to return for repeat business, providing a broader and more loyal client base.