Invoice Discounting
What is invoice discounting?
Invoice Discounting is a similar facility to factoring. With factoring, the factoring company manages the sales ledger, they issue statements, reminder letters and receive payments directly from the customers.
With invoice discounting you are responsible for managing the ledger and collecting the money from your customers. Unlike factoring your customer will have no knowledge of your arrangement with the factoring company as there is no notice of assignment on the invoice.
Invoice discounting has become increasingly popular as many businesses are not keen to have a notification on their invoices. As the factoring company does not have the same level of control over the ledger they are more demanding in their requirements before offering such a facility.
With invoice discounting you are responsible for managing the ledger and collecting the money from your customers. Unlike factoring your customer will have no knowledge of your arrangement with the factoring company as there is no notice of assignment on the invoice.
Invoice discounting has become increasingly popular as many businesses are not keen to have a notification on their invoices. As the factoring company does not have the same level of control over the ledger they are more demanding in their requirements before offering such a facility.
Is Invoice Discounting right for my business?
Many of the points mentioned on the factoring page apply to invoice discounting.
However, because the factor is dependent on you for collecting their money you will need to demonstrate that your business has a good accounting package and that you have a proven record of managing your sales ledger. The money collected from the customers will have to be paid to the factor and they will need to be sure that your finances are sound as it is easy to pay such monies into the business account rather than to the factor. Such a practice represents a serious breach of the facility.
Factoring companies expect businesses to be of a higher quality than those they will be offering factoring facilities to.
Charges for invoice discounting can be less than for factoring as the factor does not have to carry out all the sales ledger services that are associated with a factoring arrangement.
However, because the factor is dependent on you for collecting their money you will need to demonstrate that your business has a good accounting package and that you have a proven record of managing your sales ledger. The money collected from the customers will have to be paid to the factor and they will need to be sure that your finances are sound as it is easy to pay such monies into the business account rather than to the factor. Such a practice represents a serious breach of the facility.
Factoring companies expect businesses to be of a higher quality than those they will be offering factoring facilities to.
Charges for invoice discounting can be less than for factoring as the factor does not have to carry out all the sales ledger services that are associated with a factoring arrangement.
Next steps
If you think Invoice Discounting can help your business, contact us and we can advise you of your best options.
