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A Guide to Invoice Financing

Again Invoice financing is a generic term for factoring and invoice discounting all of which provide funding against your unpaid debtor book. Because invoice financing is secured against your debtor book it is a very flexible form of finance that grows with your business. It is fast becoming the first choice cash flow facility for many businesses replacing bank overdrafts which by comparison are restrictive in terms of proving cash and onerous in terms of security and flexibility.

Invoice discounting is usually provided in a confidential manner and is normally appropriate for businesses that are established , profitable and have good internal credit control procedures. Most invoice discounting companies will release up to 80% against your debtor book with the remaining 20% being paid to you when your customer pays less any charges due.  There are usually two charges for the operating the facility. Firstly there is the interest charge , an amount over bank base rate which is applied to the amount of cash you actually borrow and not the facility amount. The rate is usually comparable to a bank overdraft and in some cases can actually be cheaper. The second charge is for operating the facility and this is charged as an percentage of actually turnover. The amount charged depends upon the turnover, the number of invoices and also the quality of your invoices. Most invoice discounting companies have a comparable charging structure.

Factoring is usually provided on a disclosed basis SO that your customers are aware that you are factoring your invoices. Because factoring finance is provided in a more open format it is usually available to most businesses including new starts , loss making businesses and businesses that have been declined invoice discounting. The facility is provided in exactly the same way however the factoring company will be responsible for credit control and will add value to your business for making sure that your invoices are paid on time.

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