Brief Definitions

The IFD

The Institute for Factors and Discounters of Australia and New Zealand (IFD) was formed in 1994, and represents the interests of the major providers of factoring and discounting in Australia and New Zealand.

What is Factoring and Discounting

Factoring and discounting, also known as cashflow or debtor finance, are among the most powerful financial tools available to business.

Invoice Discounting simply involves a business turning its unpaid invoices into cash. The business literally sells its unpaid invoices to the discounter.

Factoring involves the sale of a business’s unpaid invoices as with discounting, but in addition the sales accounting functions may be provided by the factor, who manages the sales ledger and collection of accounts.

Terms

Discounter – Company buying the debt
Factor – Company buying the debt
Client – Business selling the debt
Debtor – Party liable for paying the debt
Debt – Trade debts payable by the debtors

Discounting: The sale by a business (the client) and the purchase by the discounter of trade debts on a continuing basis. The client retains the sales accounting functions and is responsible for collection of the debts. The debtors are usually unaware of the involvement of the discounter.

Factoring: The sale by a business (the client) and the purchase by the factor of trade debts on a continuing basis. The factor will carry out some part of the sales accounting function, as agreed between the client and the factor. The debtors are aware that all the debts have been assigned to the factor, and that payment must be made to the factor to discharge the debt.