• Jul 18

    Business is a risk and success comes with a lot of hard work and not to mention resources. This is why companies take it very seriously when we talk about financing. It’s a sensitive and crucial aspect because no entity will function without money. This is also the reason why entrepreneurs have come to identify single invoice discounting as one of their biggest and most effective tools. But what is it and what does it do?

    Selective, spot or single invoice discounting is a type of receivables finance. Because sales occur either on cash or on credit, there lies a discrepancy between sales level and actual cash received. Credit sales are not bad at all but because they translate to receivables, they can mean illiquid funds. Cash won’t be available for use until the invoice matures and the customer pays up.

    This can be a problem because what if the business needs immediate financing or if it requires a certain level of resources for its operations or an expansion venture. Moreover, liquidity is something that investors look at and too many receivables isn’t that much attractive.

    invoicediscountSingle invoice discounting helps solve those dilemmas and more. In this arrangement, the company chooses a specific invoice to discount. In exchange of an advance of its value, it shall use the said invoice as a form of security or guarantee to the provider. Once it matures and becomes collectible, the company receives payment from the owing customer. After which, it then goes off to pay the provider the amount received plus fees.

    The very reason as to why single invoice discounting works is because it is very fast. Unlike most financing options available in the market today, it only takes at least as fast as twenty four hours to process it and cash can be released afterwards. This is a stark contrast to other options which can take weeks or even months.

    Moreover, it is not a loan so it does not reflect as a liability in the accounting books. Single invoice discounting is an asset transaction so it also comes free of interests and property collaterals. Because it is a onetime transaction, the fee is also a onetime deal. There are no lengthy contracts too. Plus, it helps hasten collection, improves liquidity and cash flows as well as strengthens working capital. It’s even perfect for immediate and emergency needs which is why companies love it a lot.

  • Apr 15

    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.

    financingStarting off we have the advantages:

    1. 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.
    2. The necessary documents are not as burdensome as opposed to when applying for a loan in a bank.
    3. It does not levy on the company’s capacity to pay and thus will not necessarily require you to submit your financial statements.
    4. It levies instead on the owing customers’ capacity to pay what is due them should the time of payment comes.
    5. It hastens up the realization of cash by freeing up locked up ones in customer invoices.
    6. 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.
    7. It converts your accounts receivable into cash making your balance sheet more attractive to investors.
    8. 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.
    9. 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:

    1. 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.
    2. 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.
  • Oct 9

    Bank loans, single invoice discounting and business factoring are three of the most common funding methods obtained by entrepreneurs and businessmen in the corporate world today. Each one has an advantage to them depending on the situation, the gravity and hastiness of the need and the ability to pay back what is borrowed or given in return.

    business factoringOf the three, business factoring has seen to be growing at a large rate nowadays. The reason for such is because businesses are somewhat shying away from obtaining debt. Bank loans obviously are while invoice discounting involves a loan too as it is the invoices which are used as collateral for the advance received. With factoring, what the company does is sell their receivables which have been locked up in their respective invoices. The financing institution called a factor will then provide for their value in part. They will then collect from your customers and after which will forward to you any balance remaining less the fees involved. To help you understand the concept better, below are the four (4) characteristics to business factoring.

    1. It is an off balance sheet financing method. Here, your balance sheet is not adversely affected to the point that it appears less appealing to both the board members and investors. This is because once invoices have been factored, the value of the receivables are transferred as cash. Unlike in bank loans, cash does increase but your liabilities go up as well.
    2. It involves fees and not interests. Because it is in no way a loan or even close to it, no interest expenses are involved. What the company pays for instead are the management or operating fees which are to be deducted from the value of the receivables forwarded to you.
    3. The period often lasts from ninety (90) to one hundred and fifty (150) days and in other instances more than that depending on the factoring firm. This will usually involve a credit investigation not on you but on your customers. The factor will look into whether or not they have the ability to pay what is due them.
    4. Leverages on the financial strength of your customers. Business factoring leverages not on your financial standing but that of your customers. The reason for such is because the factor will not collect from you but on your customers. The burden of payment lies in them so you are freed of any liability whatsoever.

  • Oct 4

    MP900341910Are you onto a new project or maybe you’re looking into expanding your product line? Do you have to pay an already existing obligation or do you have to fund equipment acquisition? Are you setting up an overseas branch or are expanding locally? Whatever it is that you have your eyes set upon, your corporate ventures will always need and involve some sort of financial funding. Three of the most common methods employed by many businessmen are bank loans, single invoice discounting and business factoring. All these three provide for your needed funds but they are unique such that they have different requirements and terms all to their own. Read up below to gain some insights and ideas regarding these three and decide which one would and might fit your needs.

    BANK LOANS:

    This is the type that is often employed if one is in need of a big amount of capital. This can be either short term or long term with a period from a matter of moths up to ten years all of which are subject to monthly repayments (or depending on the credit terms) as well as interests.

    Here, the bank will require some sort of collateral as a security against your borrowings which may include but are not limited to corporate assets, personal properties and investments.

    INVOICE DISCOUNTING:

    This one on the other hand is a short term financing method often used to better a company’s working capital and cash flows. Here, a business may draw money against one’s invoices even before such have been paid by owing customers.

    This transaction will involve the borrowing of a percentage of the value of one’s sales ledger from a discounting firm and using the invoices as collateral. In basic sense, it is like getting a loan only you are not adding up to your debt thereby not increasing the liabilities portion of your balance sheet. The reason for such is because you are instead decreasing your receivables to increase cash.

    BUSINESS FACTORING:

    Factoring is always confused with discounting and vice versa. This is because they provide the same effects and they actually have more similarities than differences. The only varying aspect is the fact that business factoring is not a loan. It is a sale.

    Here, the company sells the right to collect against one’s invoices to a third party called a factor who in turn will give the value of the invoices in advance. Such is limited to a certain pre-agreed percentage. The remaining balance (less any fees) will only be forwarded right after the factor has fully collected from your customers. Business factoring when compared to bank loans are simpler and faster as the funds can be made available within 24 hours.

    If you need a factoring company click here.