What Is a Trust Account in Invoice Discounting?

How it works

1. You open, or name, a bank account in your company's name for customer payments. Your invoices tell customers to pay into it, as normal.
2. The account is held on trust for the lender, because the lender has already paid you most of the value of those invoices. The money in it is not yours to spend.
3. The money is moved across to the lender on a regular basis to reduce what you owe. How often, and who moves it, is set out in your agreement.
4. The lender then lets you draw again against your new invoices, and pays you the rest of each invoice, less fees, once it is paid.

Why lenders use one

With confidential invoice discounting your customers are not told that a lender is involved, so they keep paying an account in your name. The trust account lets the lender be sure that money reaches it without your customers having to change anything. With factoring, customers are usually told and pay the lender directly, so a trust account is not needed in the same way. See our confidential invoice discounting guide.

Things to get right

• Do not spend from it. Money in the trust account belongs to the lender until it is passed on. Using it for wages or bills breaks your agreement.
• Pass on stray payments. If a customer pays a financed invoice into another account, move it across to the lender straight away and tell them.
• Keep other money out. Cash sales or refunds landing in the trust account make your records harder to match up. Ask the lender how to deal with them.

Questions to ask the lender

• Can my existing business account be used, or do I need a new one?
• How often is the money moved, and who does it?
• Is there any charge for the account or for checking it?

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