Single invoice discounting facilities are financial institutions that provide funds to businesses who are considering other means of funding projects and raising capital other than loans. It is a type of receivables financing that draws up funds by freeing up locked resources in unpaid customer invoices.
Like many financing methods it has its advantages and disadvantages all depending on factors such as corporate industry from among others. To help you determine and weigh the pros and cons here, below is a list to acquaint you.
Starting off we have the advantages:
- It is a relatively fast method to obtain cash. Some facilities allow for twenty four hour fund availability if you could provide the documents needed.
- The necessary documents are not as burdensome as opposed to when applying for a loan in a bank.
- It does not levy on the company’s capacity to pay and thus will not necessarily require you to submit your financial statements.
- It levies instead on the owing customers’ capacity to pay what is due them should the time of payment comes.
- It hastens up the realization of cash by freeing up locked up ones in customer invoices.
- It helps improve your cash flows. When sales are good it does not necessarily mean that cash is going in. Remember sales can either be on cash or on credit. Those sales on credit can be hastened up and turned to cash quickly.
- It converts your accounts receivable into cash making your balance sheet more attractive to investors.
- It is not a loan although it has its benefits so you can breathe a sigh of relief as your debts will not rise up.
- It is a onetime transaction and so you will not be bound on monthly regular fees. You only pay as you use the service.
Now on to the disadvantages:
- If you are not careful you might get the said service from the wrong facility with untrained staff that will irritate your customers by constant calls, emails and unruly messages asking and reminding them to pay their due.
- In a with recourse arrangement, you will be required to buy back any unpaid invoices from the single invoice discounting facility. Therefore the risks of bad debts are shouldered by you. Fortunately if you want to avoid this, you should consider a non-recourse arrangement.