Business Finance through invoice discounting and factoring [creditdiagnosis]

Business Finance through invoice discounting and factoring [creditdiagnosis]

How to change the details contained on your invoices or credit notes. This example covers adding terms of trading to the bottom of the invoice

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According to credit scoring agency Experian, UK businesses are taking an average of two thirds of a day less to pay their invoices now than they were a year ago â€" this refers to the first quarter of 2012 compared to the same period in 2011. The average ... Getting invoicing right: a guide for small businesses

Business Finance through invoice discounting and factoring.

Due to the credit crunch and many banks' unwillingness to lend, businesses are struggling to raise money to finance their activities using traditional sources such as an overdraft, credit card or loan facilities. Given this situation, many companies are turning to sources of income such as factoring and invoice discounting.

With factoring and invoice discounting, cash flow is improved by borrowing against invoices. Using this facility the company is usually able to access 80% of the invoice value immediately without having to wait for the normal payment period. There are three main ways to do this:

Invoice Factoring

- The process of invoice factoring generally involves a bank (normally known as the Factoring company) taking over a company's invoicing and credit control function.

The factoring company makes credit available on raising the invoice. The name of the factoring company is stated on the invoice and the payment of the invoice is made directly to the factoring company. Payment collection and credit control are often managed by the factoring company. CHOCCs Factoring

- CHOCCs stands for Client Handles Own Credit Control. This type of factoring is similar to full factoring however in this situation, the company still retains responsibility for collecting payment of its invoices. It has the advantages that it will normally be a cheaper service and more control is maintained over the payment relationship with the company's clients.

Invoice Discounting

- Invoice discounting is similar to factoring in the sense that a factoring company will make credit available to the business as soon as an invoice is issued.

However, the service is discreet. The factoring company's name does not appear on the invoice and the debtors do not know of their involvement. The company sends out its invoices in the normal way and collects debt in the normal way.

Which factoring option should you use?

This depends on the nature of your business. For example, where it is important to ensure that the involvement of a factor is not disclosed, invoice discounting may be a more appropriate method. Where this does not matter or in fact where it is seen as an advantage to involve a third party to help in the collection of debts, then full factoring may be the correct solution.

Of course, for invoice discounting to be made available, the factoring company must have the confidence that the business it is lending to will be able to tightly manage its debt collection processes. For a full invoice factoring solution, up to 80% of the value of an invoice may be made available on the day it is raised. However, as invoice discounting is perceived as a greater risk to the factoring company as they have less control, smaller amounts may be made available using this solution.

It is important to understand that invoice factoring provides access to money based on business activity which is already happening. For factoring or discounting to work, the business must be already generating or imminently generating invoices. As such, it is an ideal way to improve the cash flow of the business which is currently operating. Having said that, however, invoice factoring or discounting can also be an ideal solution to help improve the cash flow position of a new business such as a Phoenix company. Here invoices will start to be raised almost immediately and so a factoring facility could be used.

Because Invoice factoring or discounting focus on cash flow improvement, they are not usually a good way of raising a lump sum for a specific business project. If this is your requirement and a bank loan is not available, then a more suitable option may be asset refinance.

Invoice financing and discounting are not without cost. Normally both options involve a service charge (which may be between 0.5% and 1% of the sum lent) and a rate of interest. However, where a business is looking to improve cash flow and more tradition methods of achieving this such as bank overdrafts and credit cards are being withdrawn, invoice financing and discounting is often an extremely useful solution.

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Question by Andrea_Geminis: How long should I keep personal invoices (not tax related), Example: Credit card bill, home phone bill...? Best answer for How long should I keep personal invoices (not tax related), Example: Credit card bill, home phone bill...?:

Answer by Mar Mar
I only keep my paper statements for one month, but a lot of companies have them online for you, so if I need it, I can always get it online.

Answer by Jennifer S
I have heard dates like 3 years to 4 years back. Ask your accountant or lawyer if you have one.

Answer by bdancer222
Tax related stuff, I keep forever, even tho you really only need to keep it 7 years. I keep credit card statements, and most other bills, 3 years.

Answer by Sparkey
7 years. (No joke)

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