What Is Confidential Invoice Discounting?

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Last Updated December 5, 2022

What Is Confidential Invoice Discounting?

Confidential invoice discounting is a type of invoice discounting facility in which a discounting company provides a business with a loan secured against its outstanding invoices. With a confidential invoice discounting agreement, the discounting company will not disclose to the business’ customers that they are working with them, keeping the relationship and funding confidential.

Why Use Confidential Invoice Discounting?

The primary benefit of working with a confidential invoice discounting company is to keep your clients from knowing you are using invoice discounting. While many of your customers and suppliers will not care if you are working with an invoice discounting or factoring company, some may be concerned about how this financing relationship will impact them. For example, a customer may be concerned about the financial health of your business if they knew you were using a discounting company (though this is unlikely). However, this concern over customer impact makes confidential invoice discounting an excellent option because your customers will remain unaware of the financing arrangement you have in place.

In addition to the benefit of confidentiality, invoice discounting provides the following advantages:

  • Improves cash flow
  • Does not require collateral, unlike traditional business loans
  • Enables you to maintain control of the invoice collection process, meaning you have more control over your customer relationships
  • Is a scalable financing solution for growing companies

How Does Confidential Invoice Discounting Work?

In a confidential invoice discounting arrangement, there are three key parties:

  • The business (you)
  • The debtor (your customer)
  • The discounting company

You will submit your unpaid invoices to the discounting company, which will provide you will a loan that is secured against the outstanding invoices. This loan is typically worth 80 – 90% of the total value of the unpaid invoices. After you receive the loan, you conduct your invoice collection process as usual. Once you have collected your invoice payments from your customers, you will pay back the loan from the discounting company minus a small service fee, which is typically 1 – 3% of the value of the invoices submitted.

Frequently Asked Questions

How does confidential invoice discounting differ from invoice factoring?

There are two key differences when comparing confidential invoice discounting and invoice factoring. The first is that invoice discounting is a loan that is secured against your outstanding invoices, while invoice factoring is the process of selling your unpaid invoices. This nuance leads us to the second key difference. Because you sell your invoices in the factoring process, the factoring company then owns the outstanding invoices, putting the factor in charge of the collections process. Your customers then work with the factoring company to pay their invoices, rather than paying you. Conversely, in confidential invoice discounting, you maintain ownership of the unpaid invoices, so you maintain control over the collections process. This keeps your customers unaware of the financing relationship and keeps you in control.

What are the different types of invoice discounting?

There are two primary types of invoice discounting: confidential invoice discounting and disclosed invoice discounting. Confidential invoice discounting keeps your customers unaware that you are working with a discounting company, while disclosed invoice discounting requires a notice of assignment be sent out to your customers, notifying them of the arrangement.