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Debt Factoring & Invoice Discounting Simplified
Debt Factoring & Invoice Discounting How it Works | Costs and Savings of Debt Factoring & Invoice Discounting | Advantages and Disadvantages of Debt Factoring | Debt Factoring Glossary| Sitemap|
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Factoring is selling your customer invoices for cash
debt factoring video
H2 level heading
Advance
You receive an advance payment which can be anywhere between 70% to 90% of the value of the invoice
Service Fee (also called:- Factoring commission, Administration Charge)
There is a charge for the factoring services (debt collection, sales ledger administration, credit control, debt protection). This is how the factoring company makes there money
Interest Fee (Also called:- Finance Charge, Money Charge, Discount Charge)
Interest is charged on the advance payment. But only on the money that you use (like an overdraft facility).
Rebate
You receive a final payment, which is the full value of the invoice minus the advance payment, the service and interest charges
IMPORTANT:- Your INTEREST FEE will be much LOWER if you don't use all your advance payment at once. YOU ONLY PAY INTEREST ON WHAT YOU USE (like an overdraft facility).
Rollover words for descripions on how savings are made
Disadvantages of debt factoring .
Will my customers be upset that I am using a factoring service?
If this was a real concern the solution is to use a confidential invoice discounting facility. This way your customers do not know that you are using invoice discounting and you have contol over managing your sales ledger, collections and credit control.
The concern though is misplaced. As you would expect significant research has been done on this and the results show (e.g. Hawkins) that in reality this is not a major concern for customers and that companies that actually use factoring or invoice discounting are overwhelmingly happy with it, especially when compared to the satisfaction levels of other forms of finance.
It isn't hard to see why this is the case, as FACTORING ACTUALLY IMPROVES THE FINANCIAL STABILITY OF A COMPANY. The reasons for this are:-
- Continuous Finance:- Reliable, continuous finance is available to the company on an ongoing basis and grows with the business.
- Credit Ratings:- Continuous finance ensures credit rating is not compromised and can be improved.
- Loan / Overdraft Renegotiation:- time is not wasted renegotiating overdrafts / loans, which can take focus away from business often at important times.
- Supplier Relations:- are improved through early payments.
- Balance Sheet:- is strenghtened as cash is recorded instead of accounts receivables, there is only one debtor, and open item accounting is utilised and maximised.
- Investment:- Finance is available to better manage operations, invest in product, service, research and development, securing the companies future.
- Cost Savings:- There are massive (hidden) cost savings associated with factoring, which improve the bottom line and financial stability.
Glossary
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