Published November 1996
by Intl Thomson Business Pr .
Written in English
|The Physical Object|
|Number of Pages||214|
Invoice financing, also known as invoice discounting, is a form of invoice finance wherein you borrow money against your company’s outstanding invoices. In short, a lender or discounting company will lend you a portion of the value of your accounts receivable (usually around 80 . This note looks at factoring and invoice discounting as ways of raising short term finance, highlighting the advantages and disadvantages of both and considering the key terms in factoring and invoice discounting agreements. This note also briefly considers issues relating to taking security over book debts and priority arrangements with other creditors, such as banks. Guide Book To Invoice FactoringAt times factoring is mistaken to be a sort of discounting term used in financialtransactions. But it is far from that. Factoring is when as a business, you sell youraccounts receivables or invoices to a third party at a discount. The title of a factor isgiven to the concerned third party. The invoice factoring or discounting funding terms may also state the maximum value of the facility often known as a 'payment ceiling' or 'refer limit'. This is the maximum level of liability to the factor that you may reach at any time.
Which Industries Favour Factoring and Invoice Discounting? Any business which invoices from days would be a typical candidate for accounts receivable financing. Equally, a business which has a smaller number of clients owing a higher value of invoice means there is a particular cash-flow vulnerability to late payments. The concepts of invoice discounting and factoring are very similar. They are both methods of invoice finance. The general rule about which one is best comes down to how efficient the credit collection, accounts and book debt department is. As a result your accountant/bookkeeper will take the receivables off of your books with a credit entry for the gross amount of receivables sold to the Factoring Company. Further, Your Business will record an asset account named “Due from Factor” for $20, at the time receivables are sold to the Factoring . The business sells the invoice to the factor for a fee of 3% () of the invoice ↓ 3: Factor gives the business an 85% (4,) advance and holds 12% () in reserve ↓ 4: Business pays interest on the advance of 4, ↓ 5: Factoring company manages the collection of accounts receivable ↓ 6: The factor collects the invoice amount of.
A factoring company has bought a $, facility with 10 invoices. Nine of those invoices equalled $99, and one was for $1, The reserve is set at $20, and your agreement states that you will only receive a reserve when all the invoices on the schedule were collected. Factoring and invoice discounting Factoring allows you to raise finance based on the value of your outstanding invoices. Growing businesses, in particular, often find that factoring is a more flexible source of working capital than overdrafts or loans. Factoring also gives you the opportunity to outsource your sales ledger operations and to use. On our guide homepage you find answers to International Trade Finance questions. In fact, the guides explain the differences between the financing options available such as: Supply Chain Finance, Factoring, E-Commerce Financing, Invoice Discounting and Trade Receivables. Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its receivable assets to meet its present and immediate cash needs. Forfaiting is a factoring arrangement used in international trade finance by exporters who wish to sell their.