About Factoring & Discounting
Cashflow is essential to ensure the smooth functioning
of the operations of a business. Traditionally, there
has been a reliance on an increased bank overdraft to
finance business
However, there are alternative types of
finance that will allow a business to automatically increase
the amount of finance available as its sales increase.
Factoring
and Discounting are two options for small to medium business
to improve their cashflow. Both of these financial arrangements
are primarily secured against the unpaid invoices of
a business.
Factoring is the purchase by the Factor and
the sale by a business of book debts on a continuing
basis, usually for immediate cash. The sales accounting
functions are then provided by the Factor who manages
the sales ledger and collection of accounts under the
terms agreed with the business. The Factor may assume
the risk for accounts within agreed limits (non-recourse)
or this risk may be retained by the seller (recourse).
Invoice
Discounting is the purchase by the Discounter and the
sale by a business of book debts on a continuing basis
(occasionally selective) for immediate cash. The sales
accounting functions are retained by the business. The
debtor is unaware of the involvement of a Discounter.
In
addition to Factoring and Discounting of domestic sales,
some Factors provide facilities for export sales.
Options
Notification
All parties are aware that the invoice has been sold
to a Factor.
Confidential
Only the Factor/Discounter and business are aware of
the involement of the Factor/Discounter.
Recourse
The Factor assumes responsibility for the business's
credit management, without credit protection.
Non-Recourse
The Factor/Discounter provides full credit cover against
any bad debts. An agreed credit limit will be set by
the Factor/Discounter for each debtor.
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