Invoice factoring / invoice discounting is a form of Invoice Financing. It utilises accounts receivable (i.e. invoices) to generate immediate cash for working capital. This is achieved by selling the accounts receivable to a third party financier at a discounted rate.
Read more here to find out the similarities and differences between invoice factoring and invoice discounting.
The essentials you need to know about Invoice Factoring / Invoice Discounting
How much cash can I get up front?
The amount of cash that can be received up front is determined by the advance rate. The advance rate is usually set by the Financier, ranges between 70-90% of the invoice face value. For example, for an invoice of $10,000, you can expect to be advanced cash in the region of $7,000 to $9,000. You will receive the balance less agreed fees once your customer has settled the invoice. (i.e. your customer remits $10,000).
Do you want to sell some or all of the invoices against a particular customer?
Traditional invoice factoring companies strictly require businesses to sell the entire turnover for a particular customer. However, with some new generation invoice financing companies you can opt for a ‘spot factoring’ or ‘single invoice discounting’ service which allows you to only sell invoices as and when you need to. This will give you control over your cash flow and financing costs.
Do you need confidentiality in your invoice factoring/discounting transactions?
Most invoice financing companies only offer ‘disclosed’ facilities, which means that your end customer will be notified of the sale of the invoices, and the financier requires payment of the invoice to be paid into their own account. This can be a major deterrent for some businesses which want to have tight control over communication with their customers. If you value the need for confidentiality, then make sure you seek out ‘confidential’ invoice financing facilities.
Any lock-in contract and penalties?
Some invoice financing arrangement may lock you in for a specified period. Check for hidden fees and penalties such as exit fees, minimum fees, annual fees or audit fees. Do be vigilant and ensure that you fully understand the contractual agreement to avoid any penalties. Such lock in contracts and hidden fees will just stifle your business flexibility. Avoid this pitfall at all cost!
Choosing Factoring / Discounting Company
With a better understanding of the basics of Invoice factoring/Invoice Discounting review your business financial requirements and seek out the right invoice financing provider. Do ask them the above questions to ensure that they can provide the service that fits your needs.
InvoiceInterchange, award winning Fintech, spearheading an alternative and new way of invoice financing
InvoiceInterchange specialises in invoice financing, offering a simple online working capital solution where businesses can auction their outstanding invoices to a network of investors, with just a few clicks of a button.
InvoiceInterchange is fast, flexible and transparent where you can receive your cash advance within a day rather than waiting for your outstanding invoice to be repaid 30, 60 or 90 days. We provide a pay-as-you-go service, which means, there is no lock-in contracts, or any hidden fees. Your business only pays as and when you sell invoices. This gives you a full control of your cash flow and funding costs. Furthermore, we offer a fully confidential accounts receievable financing service where your transaction with us is not divulged to your end customer.
If you would like to find out more about invoice financing, or how we could help, give us a try or call us to discuss: +65 65918895