Invoice Factoring: A Tool To Revitalize Your Business

imagine a situation where your company is unable to strike a good deal owing to late payment to be made by its customers. You find yourself to be really missing out on “that big deal.” But now, you don’t really need to face the guilt of missing out such an opportunity. Thanks to the boom of factoring into the financial field! All that you need to do is approach a suitable factor and see yourself getting out of every dilemma.

Compared to loans and lines of credit, which require the clients to have tangible assets and strong financials, invoice factoring [http://1rstfunds.com/Small-Business-Cash-Advance.php] helps one to attain cash easily. Besides, most of the business enterprises today do not qualify for the criterion set by the traditional lending institutions. As such, invoice factoring offers them an excellent opportunity to gear up their business. Factoring allows them to avail immediate capital only at a nominal cost.

Invoice factoring is a blessing for business enterprises that are preparing to grow significantly because the factor takes up a part of the client’s credit risk for the end customers. It involves the factor’s bearing up of the loss in case the debtor fails to pay the invoice. This, therefore, is one of the critical services lent by factors to ambitious business enterprises.

One essential thing to know about factoring is that one doesn’t need to owe anything to the factor. The factor does not advance loans but buys invoices from the client. Since invoice factoring is not a loan, it is easy to qualify for it. All you need is a well-run business along with good customers. These are the only two potential prerequisites needed to avail the benefit of factoring. Many factors, infact, do not even demand high credibility on part of the customers. This makes factoring even more alluring to small business enterprises.

Besides, one of the primary objectives of any enterprise is steady cash flow. If cash flow freezes all of a sudden, there arises an immediate need to convert the receivables into ready cash. Invoice factoring thus offers the unique prospect to regenerate a dying business as it provides certain ancillary services as well as frees up internal resources.

Tips About Invoice Factoring

One of the most difficult things about being in business is cash flow, but invoice factoring may provide the means necessary to keep the business flowing. After all, you need a certain amount of cash on hand at all times. But what if you have a stack of invoices that just haven’t brought in the cash yet? You can’t afford to wait until those customers decide to pay you. If you want to be successful, you’ve got to charge on-even if you don’t have cash on hand.

This may sound impossible, but there are solutions for businesses that have a cash flow problem. Invoice factoring is one of the easiest ways to keep the cash flowing even though your invoices remain unpaid. Here’s how it works. You receive quick cash based on that stack of invoices. It’s quick and easy. The invoice factoring company simply buys your invoices and gives you an advance payment to tie you over until your customers actually pay. Their payment then goes straight to the invoice factoring company. If it sounds too good to be true, then it helps to understand more about the process.

Here are some tips to help you use this financial vehicle successfully:

• Most invoice factoring is done in two installments. The first one is basically an advance, and it is given to you when you hand over the invoice to the financing company. The second payment, which is also known as the rebate, is given to you after your customer pays the invoice.

• Advance payments can be anywhere from 60 to 90 percent of the gross value of the invoices, with 80 percent being about average.

• With this form of creative financing, you get paid immediately rather than having to wait one to three months for your own customer to pay you.

• The cost of using this service depends on three components. The credit level of your customers is one component, and the amount of time it takes for your invoices to get paid is another. The third component is the monthly factored volume.

• Usually you will pay anywhere between 1.5 percent and 5 percent for each transaction you make.

• Businesses that are growing quickly can especially benefit from this form of financing because it enables them to get the cash flow they need quickly to keep up with the rapid pace of orders coming in.

• Invoice factoring is different than a bank loan because most banks will not give you a loan based on the stack of unpaid invoices you have. The focus is instead shifted to how much credit your customers have rather than how much credit your business has.

• It’s helpful to have insurance against fraud and / or requiring your customers to be audited. This will help reduce the risk of using this type of financial solution.

• When choosing a company to handle this part of your financial affairs, choose one that is knowledgeable about the laws regarding it.

Things to Consider Before You Turn to SME Invoice Factoring

Invoice factoring sounds like the perfect solution to a small business. Be careful though, my recent experience shows that, in some situations, this may actually be quite detrimental to the cash flow management of your business.

Firstly though, are we all clear on what is invoice factoring?

Invoice factoring takes over all the tasks involved with the running and maintaining of your sales ledger. This covers the tasks of raising your invoices to customers, payment collection and credit control. Furthermore, the factoring company will advance you upto 95% of the value of the invoices raised.

Sounds perfect?

Unfortunately if the factoring company starts to find that your customers are not paying within a set amount of time or they don’t “like” the customers you are dealing with, then they may start to cap your factoring advances. When your funds start to get capped and with no alternative arrangement in place, your cash flow will be instantly stopped and you could find yourself in a very difficult and stressful place.

So, think about your business now and try to manage this situation before the situation starts to manage you!

Here are 3 areas you should think about and how they apply to your small business accounting.

1. You lack visibility of your sales ledger process so will be dependent on Invoice factoring

The problem: Managing your customer invoicing and cash income may seem like an onerous and non priority task to you, especially if you want to be able to focus on growth. Invoice factoring can be a great solution, especially where your costs are heavily incurred upfront, e.g temporary staffing agencies. However, with handing over this processing task to a third party you will loose line of sight and visibility on who are the bad payers, how long is your cash collection cycle and what is the true requirement for working capital for your business. In the early days of your business, this may not be your concern, however as your turnover increases, factoring charges based on your gross turnover will increase proportionately. 4% of £100K may be affordable, 4% of £2m feels expensive.

To manage this situation: Think how long and at what level of turnover the factoring costs, in real terms, will become uncompetitive. Ensure you plan in advance an alternative financing strategy. Look at the terms of your agreement to ensure you will have the option to switch when the time is right and don’t tie yourself in for too great lengths of time on the promise of a lower factoring % today.

2. Slow responsiveness to queries and credit note requests.

The problem: Is it likely that customers will dispute or query invoices due to the nature of your business? Where a large factoring service is used, this will be remote to your offices. Any customers ringing up with queries are likely to be dealt with, in a less personal way than if this function were carried out in house. Customers with queries on invoices often find they don’t get a quick level of response for copy invoices or even agreed credit notes. This all results in payments being held back. Once again, this is going to impact on your advance if your agreement is that you are advanced up to a capped amount based on the age and balance on your sales ledger.

To manage this situation: Check the responsiveness of the factoring company by ringing them yourself. Do you feel happy that your point of contact is responsive to your queries as their customer? Is there cover when your point of contact is not about? If they are not responsive to you, you can bet your customers are getting an even worst service. Check also on the ledger notes and with your contact periodically. What types of queries and requests are being raised by your customers? This can give you an indication of where the process is failing. E.g are customers constantly asking for copies of invoices, could this indicate that invoice are not being sent out in time if at all. Check where you have requested a credit note, how long is it taking to get this credit note raised and you seeing it on the system. What is the principle way invoices and supporting documents are being sent to your customers, post or email and how long is this taking.

3. You have new customers who do not have sufficient trading history.

The problem: Factoring companies really do not like new companies in terms of granting advances on their invoices. With no trading history, they may simply decide not to factor these invoices but will happily take on the invoicing and credit control of these customers. This will all be wrapped up in your fee, so ensure that you understand the factoring company’s criteria for factoring a company for you. If you are paying for credit control, satisfy yourself that the factoring company is chasing your unfactored invoices as vigorously as your factored invoices.

To manage this situation: If there are going to be a number of your customers who are likely to not be factored, then it may be worthwhile you taking on your own credit control of your customers. In terms of the management of your cash, these customers will be critical and will probably need much closer watching until you are satisfied they will pay to terms and will not make an unnecessarily pull on your cash reserves.

Otherwise, check the processing time it takes for your Factoring company to raise, send out and collect payment from your unfactored invoices. Check the lead time your invoice factoring company believes it can work to. Now check with the customer on how quickly they are receiving the invoice. With some of the larger factoring businesses, they do not know themselves so don’t always rely on what they are telling you, carry out your own checks.

Invoice Factoring- The Best Solution

If you are involved in business, then you know the importance of cash flow. Cash flow is the biggest business necessity, and when it runs short, there is a serious problem. This is where invoice factoring can help. Invoice factoring is a cash flow tool used by a variety of businesses because of its ancillary services. It provides easy and ready cash necessary for a business to run smoothly.

Invoice factoring is the easiest way to get cash in the event of a financial emergency. All a business has to do is sell its invoices for cash. An invoice factoring company will pay you cash for your open invoices- by far the best option available to you if you should find yourself in an emergency. It is wise to be prepared for these kinds of situations, but it is not always possible- and invoice factoring can help you out.

When pressed for cash, most businesses first impulse is to apply for a loan from a bank. This is not a wise step, as the majority of banks have been stockpiling their loan loss reserves over the last several years; invoice factoring is infinitely more practical. A little-known fact is that this easy financial option has been used for centuries.

Invoice factoring is a smooth cash flow tool used by a variety of businesses, both upcoming and established. The benefits of invoice factoring are as follows:
Invoice factoring easily eliminates bad debt. This non-recourse factor simply presumes the risk of bad debt and eliminates this expense from the business’ income statement.
The majority of the work associated with processing invoices, such depositing checks, posting invoices, entering payments and producing regular computer reports is handled by the factor.
An unlimited source of capital, invoice factoring is the only source of financing that increases with your sales.
You need not lose money by offering early payment discounts and volume discounts.

If you are in need of urgent cash, invoice factoring is the best solution. For more information on invoice factoring, factoring invoices and invoice factoring rates please visit.

Cash Flow Management – Time to Take Control!

Cash flow management is one of the most important and most ignored financial tools available to business owners and managers. Cash flow management is not accounting! Many business owners fail to recognize that the rules of accounting define when and how transactions are recorded in their financial statements, which is no help when they need to manage their cash for next week and next month.

True cash flow management must be based on a cash flow projection, a tool which forecasts the actual date that deposits (revenue) will be made and when, in the future, expenses will be paid. How important is cash flow? Keep in mind that businesses fail every day because they run out of cash, even though their income statement showed the business to be operating profitably.

What to do when you find yourself in a cash crunch? First, understand the factors that drive cash flow and how you can take control. The following factors have the greatest impact on cash flow:

  • Accounts Receivable (time between generating the invoice and depositing the cash)
  • Accounts Payable (time between receiving the invoice for purchases made and your payment of that invoice clearing the bank)
  • Inventory (time between paying for the materials and depositing the income from the sale of the finished product)
  • Capital expenditures (cash out to make the purchase vs. recording depreciation expense over the useful life)

Later in this report, we’ll focus on cash flow projection tools and techniques. Let’s start with some quick fixes that can get you some relief from a cash crunch.

1. Get the Money!

    a. Issue invoices quickly – Don’t wait until the end of the week or month to generate and mail invoicesb. Ask your best customers to accelerate their paymentsc. Offer rewards to customers for quick paymentd. Offer electronic fund transfers as a method of payment to eliminate “it’s in the mail” timee. Include promotional flyers with invoices – Offer perks for quick payments or to promote the launch of your new product or servicef. Require COD on future sales for slow pay customersg. Aggressively pursue unpaid invoices, i.e. one day past the due date

    • Call the customer weekly – Take detailed notes of each call and conversation
    • Involve the owner of the company – Don’t stop at the AP clerk, call the owner directly
    • Create a written collections policy and follow it, don’t be a “softy” – Define hard timeframes for action. For instance, an invoice that is due in 30 days; at 31 days, call the customer: at 45 days, offer a payment plan: at 75 days, turn over to a collections agency: etc…
    • Take legal action sooner rather than later – The longer you wait, the further down the list of creditors you may be
  • b. Restructure your invoices to define a specific date the payment is due. Your invoice should encourage action, not inaction, i.e. “Payment due June 2” is better than “Payment Due in 30 days”.

2. Hold on to your cash as long as you can!

    • a. Prioritize the payment of invoices – All invoices are NOT created equal!

      • Pay the most important invoices first
      • Minimize late fees, finance charges and penalties – Pay invoices with the highest penalties first
    • b. Communicate with your lenders sooner rather than later – Your cash issues will get worse before they get better!

      • Negotiate interest-only payments on loans for the next 6 months, without penalties
      • Never promise anything you cannot deliver, especially with your banker – if you can only pay $300 per month, do NOT agree to pay $500 per month
    • c. Contact suppliers and negotiate extended payment terms,

without

    • penaltiesd. Search for new suppliers that offer longer payment terms
    • Longer payment terms can be much more valuable than a lower price
  • e. Consolidate loans, where possible

3. Convert Assets into CASH!There are many ways to create cash from the assets of your business, some better than others. The following is a list of options for converting assets into cash:

    a. Sell off out-of-date inventory, unused equipment; anything else you have around that’s not making money

    • Pawn shops, Craig’s List, EBay, and inventory liquidation firms are just a few of the options available
  • b. Consider selling your accounts receivables to a Factoring company

    • Factoring companies will buy your accounts receivables, at a discount – You get the cash quickly, they assume the hassle of collecting from the customers
  • c. Consider using leasing companies to sell and then lease back your current assets, such as machinery, equipment, computers, software, phone systems and even office furnitured. Use the inventory you have on hand to secure a loan or line of credit.

Cash Collecting – 10 Reasons Why Electronic VS Standard Invoicing Wins

Should your business cash collecting be evolving and changing with the technology? In today’s world when everything is becoming virtual overnight, cash collecting has been moving fast towards full automation and paperless existence.

Research by leading IT analysts has found that companies with the fastest-growing profits in their industry sectors are the ones that are changing their document processes and automating them. Businesses with effective document processes in their billings and cash collecting are more likely to experience profit growth and shortening of their cash payment cycle. Unfortunately, for many businesses invoicing and cash collecting still involves manual processes. These inefficient manual steps limit the business ability to achieve objectives such as reducing cash payment cycle and increasing profitability.

Still, many other businesses have now been doing their cash collecting using the latest, fully automated document management technologies, mobile SMS messaging, e-mailing and electronic voicemail delivering. For the same reasons, many businesses have already moved to electronic invoicing and cash collecting.

This is not only a step forward in decreasing the global carbon footprint, electronic invoicing has lots of other added advantages over the standard invoicing. These are 10 big reasons why electronic invoicing and cash collecting vs standard methods always wins:

  1. Web based technology is inexpensive and easy to install.
  2. Substantial business cost reduction (E-billing results in substantial cost savings as no paper printing, mailing and posting of invoices is required).
  3. Instant delivery of invoices (your bills/invoices are being delivered instantly and you can also trace the delivery/reading status).
  4. Shortening of transaction cycles (automation shortens all steps in credit control, from invoicing to collecting).
  5. Invoices could be resent at any time (once in the system and sent to the clients, invoices could be resent at a click of the button many times if required).
  6. No filing is required (your business will save on human resources as the invoicing could be done with less staff, with no filing required).
  7. Easy access to invoices (invoices are accessed at the press of the button at any time).
  8. Significant reduction in Days Past Due (DPD is a measure of the average time to collect receivables. An automated billing system is easily configured to send regular reminders to unpaid bills. This regularity will significantly reduce the payment cycle).
  9. Anyone in your business could be trained to cash collect (using an automated system is simple and easy to use with little training).
  10. Increased productivity and profitability (with fewer manual tasks in accounts receivable, more could be achieved with less people).

As you can see above, automated document management and cash collection has the potential to deliver significant benefits as a result of eliminating document process inefficiencies within cash collection.

Small Business Factoring – Remedy For Cash Flow Problems

When starting out as a business owner, no doubt you considered all the aspects of owning and operating a business. One neglected area of business ownership is cash flow. Neglected that is until the business owner realizes outstanding billed invoices are not being paid in a timely manner and ongoing operations can’t be funded since the necessary cash flow is not coming in as expected. What is the solution for a new business or one that does not have enough established credit to get a line of credit from the bank?

Small business factoring is one solution that offers quick access to cash collateralized by your own accounts receivable or outstanding invoices. First. let’s consider the situation and how cash flow problems came about in the first place. Generally, invoices are sent to customers with Net 30 terms, meaning the balance of the invoice should be paid by the customer within 30 calendar days. As many business owners know, seldom do their customers pay within a 30 day time frame with many going unpaid for sixty days or more. Odds are, your customer is experiencing the same cash flow problems as you, their vendor.

So how can small business factoring be a solution for cash flow problems which plague small and mid-size business? Invoice factoring can provide much needed cash within days rather than weeks for your business. This type of business funding is simple in methodology. For example, once a business supplies goods or a service to a customer and an invoice is generated for the total amount due, rather than sending the invoice to the customer, the invoice is sent to a factoring company.

The factoring company will take the invoice and evaluate the financial worthiness of your customer and if they meet the factoring company’s guidelines, they will send you, the business owner, a check for about eighty percent of the total value of the invoice. The other twenty percent of the outstanding invoice is held in reserve until the invoice is paid in full. Once the invoice is paid, the factoring company will send you another check for the remaining twenty percent less their fee.

The small business owner receives needed cash to operate his business within a few days allowing him to continue operating unencumbered by cash flow shortfalls. The factoring company assumes the risk of collecting the outstanding invoice and collects a fee from the total amount of the invoice. Small business factoring is an excellent solution for cash flow problems affecting your bottom line.

How To Improve Your Business’ Cash Flow Forecast With Factoring

Cash flow forecasting is good business practice for any business.

The cash flow forecast is divided into periods of time and shows the flow of cash through a business, what it starts the month with, what it receives, what it pays out and the balance of cash left at the end of the month. Normally the period will be months but where cash is tight a business may forecast their cash flow on a weekly or even daily basis.

The key issues that factoring addresses is that businesses tend to sell on credit terms to each other. That means that if you raise an invoice today it will typically be on 30 days payment terms. That means that it will be 30 days from today’s date until that invoice is due for payment.

The reality is that the time taken to pay that invoice can be much longer, may be 60 or even 90 days. There may be 101 different reasons for this but as examples, in some cases the customer may only pay invoices at the end of each month which means that an invoice received mid-month may only be paid at the end of the following month. In addition, businesses often stretch out their payments to suppliers, beyond their payment terms, in order to fund their own businesses. Put simply, if they don’t pay your invoice they don’t have to borrow the money from their bank in order to pay your invoice!

Below is an example of how delayed payment of invoices can affect the cash flow forecast of a small business:

Month 1 Month 2 Month 3 Month 4
Invoices raised (£)
10000 10000 10000 10000

Invoices outstanding at beginning of month
0 10000 20000 30000

Invoices paid by debtors during month
0 0 0 10000

Invoices outstanding at end of month
10000 20000 30000 30000

You can see that the business does not receive any cash from invoices being paid by debtors until Month 4.

Despite the lack of payment of your invoices the product still has to be purchased and delivered to the customer. Even if you are able to get credit terms from your suppliers it is unlikely that they will be long enough to account for the extended time that customers may take to pay you. Similarly, all your business expenses and bills still fall due each month and you need cash to pay them despite not having been paid by your customers. This creates a cash flow gap – the gap between the time that you have to pay your expenses and bills and the time that you get payment from your customers for the goods or services that you provide.

The cash flow forecast below shows how the expenses of the business fall due from Month 1 onwards but because of the delays in being paid by debtors, the business has a negative cash position throughout the forecast that will need to be funded from somewhere:

Month 1 Month 2 Month 3 Month 4
Invoices raised (£)
10000 10000 10000 10000

Invoices outstanding at beginning of month
0 10000 20000 30000

Invoices paid by debtors during month
0 0 0 10000

Invoices outstanding at end of month
10000 20000 30000 30000

Cash on hand at beginning of month
0 -6000 -12000 -18000

Cash received during month
0 0 0 10000

Expenses paid during month
6000 6000 6000 6000

Cash on hand at end of month
-6000 -12000 -18000 -14000

One solution is factoring bridges that cash flow gap, as soon as you raise your invoices a copy goes to the factoring company who then provide you with 85% (sometimes more) of their value immediately. That 85% means that you have the bulk of the money immediately, certainly enough to pay your expenses and bills within a business that has even the most reasonable of profit margins.

This cash flow forecast shows the same business but you will see that from Month 1 they receive 85% of the value of the invoices that they raise immediately:
NB Factoring charges are not shown in these examples but should be added into your forecast
That 85% is then repaid to the factoring company when the customer finally gets around to paying and the remaining 15% then becomes available to you from that payment (less the charges that the factoring company makes).

The above cash flow forecast also shows the effect of that balance of funds being past onto the business, after the customers pay, in month 4.

So by using forms of invoice finance such as factoring a business that could not afford to fund its cash flow gap is able to adequately provide enough cash to pay its business expenses as soon as it starts trading.

Ease your Cash Flow: Invoice Finance

There are several benefits that can be gained when a company decides to invoice finance. A business that deals in the sale of products or services to other businesses will receive the advantage of improved cash flow by using an invoice finance service.

Basically, to invoice finance means to sell or assign your outstanding invoices to an invoice finance company. This company in most cases will give you instant access to a percentage of the total amount of the unpaid invoices assigned to them, commonly from 70-90% of the value of approved invoices. In many cases they may also take responsibility for invoicing, chasing and collecting owed invoices as well as accept a percentage of the loss on unpaid invoices.

Having access to these funds greatly increase the cash flow within your company. Cash on hand for increased production, savings by way of discounts on company expenses, decrease or even elimination of business expenses, and improved opportunities for business loans.

By using an invoice finance service there is no waiting 30-45 days for people who pay on time, and even longer for late payments on invoices. That cash on hand can be more readily available for production, creating an immediate availability for more sales.

Another area the right business can gain greater cash flow from using invoice finance is in taking advantage of discounted payments of business expenses. Many companies offer discounts of as much as 10% if their invoices are paid on receipt or within a certain period of time.

With invoice finance you have cash on hand to pay your bills sooner, rather than having to wait until your customer pays you for your product or service. Increased cash flow also increases your companies purchase power, making it possible to negotiate better terms or discounts from suppliers. The savings in these two areas alone will in most cases outweigh the fee from the invoice finance service.

There are other business expenses that can be cut back or even eliminated when using invoice finance, for example: administration costs, stationery, and office equipment. When adding the expense of employing an accounting clerk, not only their salary but also company benefits, it’s easy to see some great advantages to using an invoice finance service.

Invoice finance can be particularly helpful to a business in the start-up phase. Most lending institutions have strict rules on lending to ‘new businesses’. A bank or lender will only consider a small portion of outstanding (unpaid) invoices owed, often only 40% of the total amount of outstanding invoices, when administering a business loan. By invoice financing your ledger shows cash on hand in place of a large amount tied up in outstanding invoices.

There are some disadvantages to using an invoice finance service. The goods or service your company supplies can have a huge effect on whether your company should use invoice finance. Businesses providing recurring services or product orders are good candidates, while invoices for one-time orders might find it difficult to obtain this type of funding.

These companies prefer to know the debtor and their track record in paying debts before accepting invoices owed by that debtor. Another disadvantage would be if the mark-up sale price of the goods or service provided were less than the amount of the invoice finance fee.

For the right business combining the improved cash flow with a reasonable profit margin along with increased sales orders the business is in a position to expand and the cost to invoice finance can easily be absorbed in increased profitability.

Factoring and Invoice Discounting – What Are the Differences?

Whether you are a new business dependent upon regular cash flow, or anticipate an increase in sales and are eager to take advantage of it, then perhaps you should consider a factoring facility. There are many benefits to factoring and invoice discounting, and they could prove to be the answer to your cash flow problems.

If you are already familiar with factoring then you will have also heard of invoice discounting. The invoice finance market consists of factoring and invoice discounting companies; these can be operated by well-known big banks or independently run specialised companies. Each one sets their own criteria, capabilities and prices which can vary greatly.

Factoring and discounting are both quite similar, but you need to have an understanding of both before you can make a decision about which would suit your business needs the best. Here is a quick explanation and their main advantages.

Invoice Factoring – Factoring is a finance facility that enables you to raise finance based on the value of your outstanding invoices. Instead of sending out invoices and then waiting up to a month or more for the cash to arrive, you can change them into cash almost instantly. Many businesses just starting out have come to the realisation that factoring offers a more flexible source of working capital than overdrafts or loans.

Factoring an invoice basically means that your company is selling the financial rights of the invoice to the factoring company. The transaction is arranged as a sale and the factoring company will pay you the invoice amount in two payments. The first payment is known as the advance and given to your company as soon as you sell the invoice to them; this can be up to 90% of the invoice. The remaining 10% to 20%, the rebate, is received when the client actually settles the invoice.

When applying for a business loan you generally have to wait some time before finding out if the application was successful or not. Factoring is much easier and quicker as the waiting period is much shorter. As the factoring companies generally buy the invoices from the company, their main worry is if the company paying the invoices has good credit, this means that small businesses or those needing to raise cash have a much better chance of getting a factoring line, as long as they work with a strong client list.

There are various fees attached to invoice factoring services, they can be higher than the cost of a business loan and are decided according to the size of the line, the credit quality of the invoices, and how stable the client’s business is.

Invoice discounting – This works in the same way that factoring does, by freeing up cash from your invoices. The difference is that the lender does not offer credit management services to facilitate collecting your outstanding invoices. The service will just release up the invoice value, which can be up to 90%, and you keep control of the credit management. The remaining 10% is then accessible when your customers pay the invoice.

Cash is the livelihood of every company and if you are owed it but don’t not actually have it in your hand then this can cause you a lot of frustration and potential headaches. Invoice discounting lets you keep control of your debtor book as you are in charge of managing the credit, this means that your business is responsible for collecting clients outstanding due payments.

The advantages of using invoice discounting are that it has no affect on the relationship between you and your clients. There is no reason for them to know about the contract, particularly if you operate a confidential invoice discounting facility. This ensures you are able to carry on providing the same credit terms arranged prior with your clients without affecting the company’s cash flow.

Your business retains control of the company’s sales ledger and manages the credit control. By releasing up to 90% of the gross invoice value it provides your business with the answer to cash flow problems. Usually invoice discounting is cheaper than factoring as it doesn’t take up as much time, however, it does have a higher risk potential.

A quality factoring company will provide you cash against your existing debtor book and finance invoices as you raise them. They can also assist by collecting the outstanding payments by way of their credit management service.