• Oct 13

    Invoice financing has become a massively used method for entities that are in need of cash and would not want the hassle and interests of regular loans and the lengthy application to approval time that comes with it.

    By definition, invoice financing is a method by which companies derive funds from their unpaid customer invoices or in other terms its receivables. We all know that sales can happen on cash or on credit. With the latter, businesses will have to wait for a certain period of time before collections are made and the actual realization of cash is apparent. This can be bad in a way because even with a rising amount of sales, the amount of cash that the company has at hand and can use is not available. Cash is locked up as receivables. Invoice financing frees them up.

    single-invoice-financeBut what about factoring? Where does it come to play? It is in fact a method of invoice finance apart from the other one called discounting. Today, we’ll focus on the former.

    Basically, factoring is the sale of the corporate assets which in this case are the receivables. The company, in order to free up the cash, sells off the right o collect against the customer invoices to a financial firm or a factor as what they are mostly referred as.  The factor in turn provides for the cash which is correspondent to the value of the receivables subjected. This is oftentimes equivalent to around eighty up to a ninety five percent of their value. The remaining balance, which is less any agreed upon fees, is only released once the full amount has been paid by the owing customers.

    The reason why factoring has become widely used is due to its numerous benefits to wit:

    For one, it is a very quick method to acquire funds. In fact, it can take only around 24 hours at the least for the cash to be made available. This makes them very useful for emergency situations.

    Second, it banks on the credit rating of the owing customers and not on the business itself. Therefore, no financial statements will be necessary nor are credit rate and history an issue.

    Third, it does not appear as a debt in the financial statements but rather an increase in cash and a decrease in the trade receivables making. This is in fact a very good effect brought about by invoice financing and factoring part from the absence of any rising interest expenses.

  • May 20

    invoice finance for businessInvoice finance is a method used by businesses in which they draw out funds or cash from their customer invoices and receivables even before they are actually paid for. This has been a common tool used by any companies and has also been proven to be advantageous in numerous circumstances.

    There are two types of invoice finance. The first is called factoring while the second is referred to as discounting. The two bring about similar benefits but are treated differently as the first is considered a sale while the latter a loan.

    Factoring is where the business sells its invoices to a third party. Such party provides an advance which is typically 80% to 95% of the value of the receivables. It then proceeds to collect from the owing customers. Once full collection is attained it then forwards the remaining balance to the business seller less any fees.

    Discounting is where the business gets a percentage of the receivables’ value from a third party with the receivables used as collateral. The business proceeds to collect from its owing customers and once payment has been completed they will then repay the financing party for the advance they have provided plus any fees agreed upon.

    Invoice finance is used for many purposes and reasons which includes but are not limited to the following:

    • A NEED TO INJECT CASH INTO THE SYSTEM – When companies need to improve their cash flow, this is one of the best solutions there are. It significantly improves the inflows versus the outflows of the entity.
    • ABSENCE OF A LOAN – It is not a secret that loans are not easy to acquire. Invoice financing on the contrary is rather easy as it does not require a lot and would not even require you to submit your financial statements. The reason is because the provider of such service does not lobby on the capability of the selling company to pay but rather on its owing customers.
    • LESSENING OF BAD DEBTS – They also help lessen the amount of bad debts and the expenses or losses that go along with them. The risks will be borne by the financing party but one should remember that this is not applicable to every invoice finance transaction. It has to be stipulated and contained in agreement.
    • EMERGENCY EXPENDITURES – Because invoice finance can be acquired and received in twenty four hours or less they are useful for emergency expenditures of the company and there is no available cash at the ready or fi there are they have been limited for use in other corporate endeavors.

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