Tag Archives: factoring

Why traditional and Single Invoice Finance is Good for You

single-invoice-financeTraditional and single invoice finance has to be the saviors in a world full of cash flow needs and difficult financing options. They’re definite lifesavers if you ask us and here’s why.

In an invoice factoring arrangement there are three main characters or parties: the company selling its receivables, the customer who owes the company and to whom the receivables are attributed to and the financing agent called the factor.

In this scenario, the company sells its right to collect against the receivable by virtue of its sales invoice to the factor in exchange for immediate cash which is to be received before the customer pays their dues. The factor shall bear the burdens of collection and provide an amount that is equivalent to about 80-95% of the invoice’s total value with the remainder being held up until the customer pays in full at the maturity date of the invoice. It is only then when the balance is forwarded to the company less the fees agreed upon.

There are many reasons as to why these two methods are widely used and below are only some of them.

  • It’s relatively fast. – Ever heard of a loan or similar other financing medium that releases cash in a matter of a day? No of course not. Well not until invoice factoring. Most providers can approve and release the cash in as fast as twenty four hours.
  • There are lesser requirements to deal with. – It’s less of a hassle because of the far lesser amount of requirements to submit during the application process.
  • It’s no form of debt. – Wait what? Yes, you’ve read that right. Factoring creates zero debt because it is not one. It also does not bear all the other strings attached to one such as interests and penalty fees.
  • It injects immediate cash into the system. – With the swift process, it enables the immediate injection of resources into the cash flow thereby strengthening the working capital as it does. This is great in terms of liquidity purposes and frees up any locked in cash within invoices.
  • Even struggling entities can use it. – Really? Yes really. This is because traditional and single invoice finance providers bank on the customer’s creditworthiness and not on the company’s. After all, it’s the customer who has a debt in this situation as evidenced by the sales invoice.


Learn more at this site: http://workingcapitalpartners.com

What is Invoice Discounting

invoice-discountWhen it comes to financing, credit and debt are two of the first things that come into mind. However we all would agree that entrepreneurs would want to avoid those two as much as possible. There’s nothing wrong with loans. Don’t get us wrong. But it would be far better to live off and operate without it, don’t you agree? So how do you raise funds without them? Is there any other way? Yes there are, quite a few in fact.

Definition

Explained in capsule, invoice discounting allows a business to draw money against its sales invoices before the customer has actually paid. It is a short term borrowing but without the repercussions and effects that traditional forms of credit possess.

It works slightly akin to invoice factoring but instead, uses the receivables as a form of collateral. Also, the company still retains the burden of collection and will repay the financial provider with the sum advanced plus a percentage of fees.

How It Works

Businesses sell either on cash or on credit. The barter of trade with the former is immediate. Sellers provide the goods and/or services while buyers pay cash in exchange. As for the latter, the buyer defers payment as they become debtors thus owing amounts to the company.

Of course, most entities have set up means to ensure that they only extend such credit sales to deserving and qualified customers. However, it cannot be discounted that the cash that comes with the receivables and invoices created by such transactions is trapped and made unavailable for use.

To free up those invoices even before customers get to paying, invoice discounting can be used. The financial entity provides an amount equivalent to or of a certain percentage against the value of the invoices. Companies can use such resources in whatever means they find necessary. They will then collect from the owing customers once maturity date comes and once completed, they shall then repay the provider.

Perks and Benefits

Companies make use of invoice discounting for the perks that it provides. First of all, it helps strengthen the working capital and improve cash flows. Not only does it free up the locked in cash but it also creates immediate availability making it a great option in cases where the business is in need of instant resources for an emergency situation.