An immediate short-term loan secured against unpaid cash invoices
Invoice factoring, also known as invoice discounting is needed when your company is in need of some cash flow due to the fact that your clients have not paid their invoices yet. This severely limits your ability to place new orders, expand your business or even pay your creditors and salaries at month end.
Often, clients only pay 30 days, 60 days or even later after taking delivery of the goods, which means that your business could experience cash flow difficulties for an extended period of time. Clearly this type of scenario impacts negatively on any business’ growth potential.
What is invoice discounting/factoring?
Invoice discounting or invoice factoring is a short-term loan used to improve business cash flow. Invoice discounting allows a company or business to borrow money, which is secured against unpaid cash invoices. The financial institution pays the company up to 80% of the invoice amount immediately and collects the money from the debtor when the invoice must be paid. If the financial institution does not do the collecting of the money from the debtor itself then the company has to collect the payments and pay the full invoice amount over to the financial institution.
Benefits of invoice discounting/factoring
- An immediate increase of your company’s cash flow.
- You only pay interest on the amount borrowed.
- Invoice discounting can be done by ways of a confidential discounting agreement. This may appeal to businesses in need of an improved cash flow but who do not wish to involve their debtors in the process.