Invoice discounting has some characteristic of invoice factoring and differences can be seen on debt book control.
If it is an invoice factoring part, the debt book is controlled by the factoring agency, however
In the case of invoice discounting, you keep control of you debt book.
The debt book will help businesses to increase their cash flow and keep control over debt chasing.
Invoice discounting is less common than invoice factoring, and to be able to qualify your businesses will require an annual turnover of £500K and a proven track record.
Invoice discounting : how it works ?
An invoice discounter will first carry out the health of a company before doing anything with it. To achieve this the invoice discounting provider will look to your customer range and financial system.
If you pass this examination with success, the provider will calculate a level of lending that is an agreed percentage of the total outstanding sales ledger.
In addition to interest on the amount of the sales ledger advanced to your company by the invoice discouting provider you will have to pay a fee each month.
If your agreement allows you an advance of 85% of your total overdue sales ledger, and the total owed varies, then you will receive an amount in line with the variation. If the overdue, you will have to repay the amount of debt proportionally to the percentage chosen ie 85%. If the debt increases, the invoice discounting provider will advance 85% of the increase in the outstanding debt to you.
Therefore, there will be always equilibrium between the money your business owes to the invoice discounter and the money advance by the invoice discounting company.
The characteristics of invoice discounting
Transparency: your clients do not know that you are using an invoice factoring services. And it is up to you to do the debt chasing.
The invoice discounter will evaluate your business and associated process before working with you. This is a security for the provider to take control of your debt.
During the contract period, the provider will regularly check your credit control system.
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Keywords: 500k, annual turnover, cash flow, customer range, equilibrium, factoring services, health, invoice discounting, invoice factoring, money, proven track record, sales ledger, securi, transparency, variation.
