Using Invoice Discounting For Cash Flow

Using Invoice Discounting For Cash Flow

Using Invoice Discounting For Cash Flow
Invoice discounting is​ basically the same as​ invoice factoring: it​ involves selling your invoices that are not yet due to​ be paid to​ a​ company at​ a​ discount .​
The discount provides the company purchasing your invoices with their profit; but by receiving cash now for your invoices, invoice discounting enables you to:
* Meet emergency expenses
* Pay suppliers early to​ take advantage of​ early-payment discounts
* Take on time-sensitive new projects
* Expand your business more quickly
* Pay for costly advertising that will bring in​ more sales
* Beef up your business prior to​ crucial time points
Invoice discounting involves finding a​ company that will purchase your accounts payable at​ a​ discount that depends on the length of​ your payment window .​
The discount generally ranges from about 1.5% to​ 5% for every ten days until payment is​ due, with the lower discount percentages going to​ the most creditworthy of​ the companies that owe you money .​
Your company's creditworthiness has no bearing on this sale .​
And with invoice discounting, you can sell part or​ all of​ any reasonably creditworthy debt.
You can either sell your invoices on a​ notification basis which means the company that purchases your invoice also collects on it​ or​ you can work out terms with the company purchasing your invoices on a​ self-collect .​
The difference is​ when it's a​ notification sale, your debtors will pay the invoice discounting company directly .​
If you collect debts yourself and then forward to​ the invoice discounting company, your customers will never know that you sold their invoices to​ another company .​
It is​ easier to​ sell invoices on a​ notification basis because the invoice discounting company knows, this way they will get their money back in​ a​ timely fashion.
The main advantage of​ selling invoices on a​ notification basis is​ that the factor, or​ invoice discounting company, is​ then responsible for collecting the debt and assumes all the credit risk .​
The factor is​ often a​ broker, not the company purchasing your invoices .​
Using invoice discounting on a​ regular basis to​ fund your company can eliminate the need for staffing a​ credit and collection department, which equals another saving for you.
Other Ways to​ Use Invoice Discounting
If you establish an​ ongoing relationship with an​ invoice discounting company, you can even establish the equivalent of​ a​ line of​ credit based on your invoices .​
Instead of​ using all the funds forwarded to​ you in​ payment for your invoice, you take what you need and leave the rest with the invoice discounting company .​
The discounting company allows your account to​ accrue interest, and you can draw on the account as​ you need cash.
If you're not ready to​ sell invoices outright, you can try using accounts receivable as​ collateral for a​ loan .​
This involves getting a​ bank to​ accept both your credit and your debtors' credit, and then collecting cash equal to​ at​ least half and up to​ ninety percent of​ your accounts receivable .​
This is​ a​ little cheaper than invoice discounting, but it​ can also be both slower and less flexible.

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