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.

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.

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.