You have done the work, issued the invoice, and are now waiting 30, 60, or 90 days for a corporate client to pay. Meanwhile, you have staff to pay, supplies to buy, and new projects to fund. Invoice discounting is a solution that lets you unlock cash tied up in outstanding invoices - without waiting for your clients to pay.
This guide explains how invoice discounting works in Nigeria, which providers offer it, and what it costs.
What Is Invoice Discounting?
Invoice discounting (also called invoice financing or receivables financing) is a type of short-term business finance where a lender advances you a percentage of the value of your unpaid invoices - typically 70–90% - immediately. When your client eventually pays the invoice, the lender takes back their advance plus a fee, and you receive the remainder.
You get cash now. The lender gets paid later from your client's payment.
Invoice Discounting vs Invoice Factoring
These two terms are often confused:
| | Invoice Discounting | Invoice Factoring | |---|---|---| | Who collects payment | You collect from your client | The lender (factor) collects directly | | Client awareness | Often confidential | Client usually knows | | Control | You retain credit control | Lender manages debtor book | | Best for | Businesses with strong credit control | Businesses that want to outsource collections |
Most Nigerian SMEs prefer confidential invoice discounting - your clients never know you have financed the invoice, and your business relationship is preserved.
How Invoice Discounting Works in Nigeria
- You issue an invoice to your corporate client - e.g., ₦5,000,000 due in 60 days
- You approach a lender and present the invoice as collateral
- The lender advances 80% of the invoice value: ₦4,000,000 - paid to you within 24–72 hours
- Your client pays the invoice on the due date - ₦5,000,000 goes to the lender
- The lender deducts their fee (e.g., 3–5% of the invoice value = ₦150,000–₦250,000)
- You receive the balance: ₦5,000,000 − ₦4,000,000 − ₦250,000 = ₦750,000
Net result: you received ₦4,750,000 over the course of 60 days, paying ₦250,000 for 60 days of liquidity.
Who Offers Invoice Discounting in Nigeria?
Commercial Banks
Most major Nigerian banks offer trade finance and invoice discounting through their SME or corporate banking divisions:
- GTBank - invoice discounting and LPO financing
- Access Bank - supply chain finance and receivables discounting
- Zenith Bank - trade and structured finance
- UBA - SME financing including invoice discounting
- First Bank - LPO and contract financing
Requirements typically include:
- Minimum 1–2 years of business operations
- Audited accounts or management accounts
- The underlying contract or purchase order
- Corporate client with good credit standing
Fintech Lenders
Several Nigerian fintechs have made invoice financing faster and more accessible:
- Moniepoint - business financing for SMEs
- Carbon for Business - quick-turnaround SME loans
- Brass - business banking with embedded financing
- Prospa - SME-focused invoice and LPO financing
Fintechs typically process applications faster (24–72 hours vs weeks for banks) but may charge higher rates.
Government Schemes
- NIRSAL Microfinance Bank - government-backed SME financing
- Development Bank of Nigeria (DBN) - wholesale lender providing funds to PFIs for SME lending
- Bank of Industry (BOI) - sector-specific financing with lower rates
What Invoice Discounting Costs in Nigeria
Fees vary by lender, invoice size, client creditworthiness, and tenor:
| Cost Element | Typical Range | |---|---| | Discount fee (% of invoice value) | 2–6% per 30 days | | Processing/administration fee | ₦10,000–₦50,000 flat | | Advance rate (% of invoice advanced) | 70–90% |
Example calculation:
Invoice value: ₦3,000,000 | Tenor: 45 days | Discount fee: 4%
- Advance (80%): ₦2,400,000 (received immediately)
- Discount fee (4% × ₦3,000,000): ₦120,000
- Balance on client payment: ₦3,000,000 − ₦2,400,000 − ₦120,000 = ₦480,000
- Total received: ₦2,880,000 on a ₦3,000,000 invoice
Annualised cost: approximately 32–48% APR - expensive compared to a bank loan, but fast and unsecured.
When Does Invoice Discounting Make Sense?
Invoice discounting is not cheap - the annualised rates are high. It makes sense when:
- You have a large, creditworthy corporate client with long payment terms (60–90 days)
- You need cash for a new project or to meet payroll before the invoice clears
- The cost of financing is less than the opportunity cost of waiting (e.g., you would lose a new contract without the cash)
- You have exhausted cheaper financing options
It does not make sense for:
- Small invoices (fees eat too much of the value)
- Invoices from clients with poor payment track records (lenders may decline)
- Businesses that can simply collect a deposit or shorten payment terms instead
The Better First Step: Prevent the Problem
Before financing your invoices, try these approaches first:
- Negotiate shorter payment terms - push for Net 14 or Net 30 instead of 60–90 days
- Collect deposits - 30–50% upfront reduces the amount you are financing
- Include Paystack links - make it easier for clients to pay on time
- Charge late payment interest - incentivise timely payment
If these steps still leave you with cash flow gaps on large corporate invoices, invoice discounting from a reputable Nigerian bank or fintech is a legitimate tool.
Create Invoices That Lenders Will Accept
When applying for invoice discounting, lenders need clear, professional invoices with all the required details - client TIN, your TIN, itemised services, sequential numbering, and proper VAT treatment.
InvoiceGenerator.ng generates professionally formatted, FIRS-compliant invoices that meet bank and fintech requirements. For more on Nigerian invoicing and cash flow management, see our Nigerian Invoicing Guide.