What is Invoice Discounting?
Invoice discounting is a form of short-term business finance that enables businesses to borrow money from a finance provider based on the value of their unpaid invoices (hence the term ‘invoice financing’).
It works by companies selling their future income stream as an asset to the lender. This allows businesses to access funds quickly and easily if they often work with clients who have long payment terms.
Discounting vs Factoring vs Finance – What’s the Difference
Nothing! Invoice discounting is the same as invoice factoring and invoice finance.
The terms are used interchangeably and you’re generally going to get the same
Do you qualify?
Through FundingHub, you are likely to qualify for an invoice discounting loan if you meet the following criteria:
- An established business that actively trades and earns revenue.
- You sell goods/services to large businesses or corporates.
* Figures are for example purposes only, and may vary from business to business.
How Does Invoice Discounting Work?
The process of getting an invoice paid by an invoice discounting lender is very simple:
Step 1: You apply for finance with an invoice discounting lender.
Step 2: The lender will look at your client, and quote you a fee for the invoice. You can use the calculator to get an estimate for invoice discounting fees.
Step 3: Once you accept the contract with the lender, they will pay you up to 80% of the invoice amount. You can choose to access less cash if you only need a little bit.
Step 4: The financer then gets paid by your debtor for the full invoice amount on the agreed invoice terms.
Step 5: The financer settles the remaining portion of the invoice with you, less their fee.
How Much Does Invoice Discounting Cost?
Fee’s on invoice discounting facilities range from around 0,1% of the amount borrowed, per day through to 0.3% of the amount borrowed per day.
A typical invoice discounting example:
A business is a supplier to a large corporate, like Pick ‘n Pay. PnP only pays this business 90 days after their products have been delivered. The business makes a big sale to PnP ahead of the Christmas season, the invoice amount is R200 000. The invoice date is 1 December 2021.
The business needs to pay their employees bonuses, because it is year-end. They need cash. They use this invoice from PnP to get an invoice discounting facility.
Because PnP is a large corporate company, and the business applying is an established business, the finance amount quoted is cheap: 0.15% per day.
The business opts to get the maximum amount possible out of the invoice: 80%.
The lender transfers the invoice away from the business, into the lender’s name. The lender pays the business R160 000 on 5 December 2021.
On 15 January, PnP settles their invoice, and pays the lender directly an amount of R200 000.
The cost of the facility is calculated below.
| Days | Price Per Day | Total Cost |
| 41 | 160000 x 0.15% = R240 | R240 X 41 = R9840 |
The lender then pays the business the remainder of the invoice, less their fee:
R40 000 – R9840 = R30 160.
The total cost of finance as a percentage of the loan amount was 6.15%.
NB : Figures are for example purposes only, and may vary from business to business.
Factors that affect the cost of an invoice discounting facility:
As always, the cost of the facility depends on a few things:
- The amount borrowed,
- The period over which it is borrowed,
- The risk that the invoicee will not pay the invoice when it becomes due,
- The lender
Pros and Cons of Invoice Discounting
Understanding the advantages and disadvantages of invoice discounting can help businesses decide whether this funding solution is suitable for their needs.
Advantages of Invoice Discounting
Improved Cash Flow
Access working capital faster instead of waiting for customers to pay invoices.
Supports Business Growth
Take on larger contracts, buy inventory, and cover operational costs with improved cash flow.
Flexible Funding
Funding grows alongside your invoicing and business turnover.
Ideal for Government and Corporate Contracts
Perfect for businesses working with long payment cycles from municipalities and large corporates.
No Traditional Collateral Needed
Invoices act as security, reducing the need for property or other fixed assets.
Faster Approval Times
Invoice finance approvals are often quicker than traditional bank loans.
Disadvantages of Invoice Discounting
Funding Fees Apply
Invoice finance carries fees that can affect profitability if invoices remain unpaid for long periods.
Not Every Invoice Qualifies
Funders prefer invoices issued to financially stable companies and government entities.
Reduced Margins
The funding fee is deducted from the invoice amount received.
Customer Payment Delays Can Affect Funding
Late or disputed invoice payments may impact the financing agreement.
Potential Overdependence
Businesses should avoid relying entirely on invoice funding for long-term sustainability.
Industries That Use Invoice Discounting
Invoice finance is commonly used across industries where delayed payments are common.
Popular sectors include:
- Construction
- Wholesale and distribution
- Retail supply
- Information technology (IT)
- Logistics and transport
- Manufacturing
- Security services
- Cleaning services
- Government tender suppliers
These industries often operate with long payment terms, making invoice finance an effective cash flow solution.
Why Businesses Choose eTender SA Funding Network
At eTender SA Funding Network, we help South African businesses connect with reputable funding providers that understand:
- Government tenders
- Municipal contracts
- Corporate procurement cycles
- SME cash flow challenges
- Invoice-based funding solutions
Our goal is to help businesses access the working capital they need to grow and operate efficiently.
Apply for Invoice Discounting in South Africa
If your business is waiting for unpaid invoices to be settled, invoice discounting could help you unlock immediate working capital.
eTender SA Funding Network can connect you with trusted South African invoice finance providers that support SMEs, contractors, suppliers, and tender-driven businesses.
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