How Invoice Factoring And Discounting Works

Post credit crunch, Invoice Financing is becoming an increasingly popular way for businesses to obtain working capital and is in turn helping many companies to continue to grow despite the tough economic climate.

How Can Invoice Financing Help me?

Cash flow is king according to the old saying and it is still as important today as it ever was, good cash flow is essential to keep a business running and maintaining healthy relationships with staff, customers and suppliers.

The effect that good cashflow has on a business is far reaching and should be not underestimated, less time spent juggling the bank balance and talking to chasing suppliers, means more time doing the things that lead to growth.

Invoice Financing is a flexible alternative to Overdrafts and other credit facilities which are becoming increasingly difficult to obtain and often do not provide enough capital when it’s really needed.

Do I Need Invoice Factoring Or Discounting?

The way your business works will determine whether Invoice Factoring or Invoice Discounting is right for you. There are differences between the two methods and their costs however the end result is the same, improved cash flow through faster payment of sales invoices.

What Is the Difference Between Factoring And Discounting?

The main difference between factoring and discounting is that discounting is an invisible service. Because you still raise your own invoices and statements and chase your own debtors, your customers will see no difference and will be unaware that you are using an invoice discounting service. This may be a benefit to some businesses, but giving up the headache of invoicing and chasing payments is more than welcome for most.

Why Not Just Use An Overdraft Facility?

One of the key advantages of Invoice Financing is that it is directly linked to your sales, the more you sell, the more working capital is released. Invoice Finance is also a competitive market you can easily switch providers to obtain a better deal or a better service for your business.

In the case of Invoice Factoring it also out sources a significant amount of your workload to a professional organisation working for you.

How Does Invoice Factoring & Discounting Work?

Invoice Factoring and Discounting are very straight forward. When you sell a product or service instead of invoicing the customer and waiting for them to pay on credit terms you will also send a copy invoice to your Invoice Financing provider. They will then make available to you the majority of the value of that invoice (between 80% to 100%) within a few days.

Once the customer has been invoiced the factoring company will then communicate directly with the customer and collect payments when due. Once the invoice has been fully settled the remaining percentage of the invoice less any fees will be paid to you. If you do not want the invoice financing company to manage the collection of the customer payments you should choose Invoice Discounting.

Simplified Invoice Factoring And Discounting Process