Describe the ‘invoice discounting’ method.

The invoice discounting method is a financing arrangement that enables businesses to borrow money against the value of their outstanding invoices. This means that instead of waiting for their customers to pay their invoices, businesses can receive immediate cash flow by using those invoices as collateral for a loan.

This method typically involves a financial institution or a specialized lender who reviews the invoices and then provides a percentage of the invoice value upfront, usually around 70-90%. When the customer eventually pays the invoice, the lender deducts their fees and returns the remaining amount to the business. This approach helps companies manage their cash flow more effectively, improve liquidity, and maintain operations without interruptions that may arise from delayed payments from customers.

Other options do not accurately describe invoice discounting. For instance, while offering discounts to customers or delaying payments to suppliers is a common business practice, they do not relate to the borrowing of funds against invoices. Similarly, increasing product prices is a different strategy and does not pertain to the concept of invoice discounting or financing.