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Invoice Finance
Author : Andy Kyle
Your business is in need of money. You have multiple invoices outstanding and repayment from those invoices is going to take time to collect. You can’t wait that long for cash. Invoice finance is a method businesses can employ in order to help solve those times of financial need. Invoice finance is also known as invoice factoring. However, it is not to be confused with invoice discounting.
Invoice factoring can be explained simply as selling off invoices to a third party at a discounted price for immediate cash funds. This third party is known as the “factor”. The factor purchases these invoices for a percentage of what they are worth. The percentage of the discount is usually anywhere from 5 to 10 percent of the invoice value. The factor company owns the invoices and will collect the full amount from the client. If the client never repays the invoice, it is the “factor” that takes the loss, not the original company.
Factoring differs from a bank loan in three ways. First, there are three parties involved: the factor, the business selling the invoices, and the client who originally purchased the goods or services. Second, the decision is based upon the value of the invoice itself and not on the business credit. Finally, it is not a loan. The transaction completes a purchase agreement.
Factoring differs from invoice discounting in that invoice discounting is borrowing funds and using the invoices as collateral. Since factoring is the permanent transfer of the asset it cannot be called discounting. However, many will try to use the terms synonymously. As a business, you do not have to sell all of your invoices if you elect to participate in factoring. You can carefully select which invoices you would like to sell off. You can select which invoices will give you the most benefit.
In order for a “factor” to purchase your invoices the services or goods must be delivered and complete. The client that you select to sell off must be credit worthy. “Factor” companies are like banks in that they are going to be careful whom they will take risks on. Most “factor” companies won’t require large amounts of financial information, nor do they want to audit your books. The most important thing to “factors” is that they are dealing with credit worthy customers.
If you elect to use invoice factoring as a method of eliciting immediate cash funds, make sure that you take the time to research a safe and reliable “factor” company. Just like any investment or business partnership, you should make sure to check out all of the facts and read the fine print.
Author's Resource Box
Corporate Credit Concepts specializes in invoice financing. For more information about invoice finance and how it might benefit your business, please visit: Invoice Finance
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Submitted : 2010-08-21 Word Count : 1 Popularity: 508 Times Viewed: 9
