The world of invoice factoring may seem confusing for the novices. Though, the basic factors are quite simple. It becomes difficult to choose one from several options that can benefit the business, particularly when the entrepreneur lacks proper knowledge about invoice factoring. Besides, the unfamiliar terminology makes situation even more complicated. There are mainly three types of invoice finance options available, they are –
• Invoice factoring,
• Invoice discounting
• Selective invoice finance or single invoice finance
A Brief Study on Invoice Factoring
The idea is quite simple, in place of waiting weeks and months for raising the invoices you owe from the customers, factoring service advances 75% to 90% against the invoices instantly. It helps you to carry out the day-to-day business operation with less complication, meet the payroll and pay the suppliers. When your client pays back the invoice, the factoring company reimburses the rest of the amount deducting their fees and the amount they advance you. Invoice factoring company also provides ‘credit control’ service for ensuring your client’s timely pay. This service helps you to concentrate on the basic chores of business in place chasing the customers for collecting unpaid invoices. Accounts receivable financing is the viable option for businesses that don’t have finance department and hold a client base that doesn’t pay immediately after the delivery of the product or completion of the service. Factoring gives an effectual means to use your resource and time.
On the other hand, invoice factoring and invoice discounting both works in the same way but when you chose invoice discounting you can’t get the ‘credit control’ service and it is mainly available for longstanding businesses who hold a record of collecting payments from the clients within predetermined timeframe. The main difference is the factoring company takes over the responsibilities of pursuing the debtor for on-time payment and issuing statements.
Selective invoice finance allows customers to select specific invoices against which the business wants to raise funds or specific client whose invoice to finance. It’s a practice option for business who clearly knows the amount of money they actually need however the process of financing is relatively complicated than the other two options.
Besides these, you can choose from full resource and non-source factoring. In invoice factoring, the business remains accountable if the client fails to pay the invoice whether it’s for financial problems, quality problems or any other issues. Whereas non-resource factoring doesn’t count the business liable even if the clients can’t pay the unpaid invoices. Depending on your preference, you can keep the service confidential as well.