Factoring and Invoice Discounting - An Overview

Since its introduction to the UK in 1960, factoring has made great strides. It was initially viewed with suspicion, but it is now widely used (nearly 50K businesses in the UK use it) and accepted way for a business to generate working capital.

Although the term Factoring is used to refer to the sale or purchase of assets, it can also be used to describe other services, such as invoice discounting.

Factoring is the financing it generates that allows a business' existence and growth, particularly in a time where traditional banks are being scrutinized.

Factoring is a simple concept. A business can factor out how much it owes to its customers by looking at the total amount. If this figure is 80%, then that's how much it could raise.

Factoring companies and businesses are not the same. The industry has developed its own terminology, which can make it difficult for potential buyers.

Invoice Discounting is, at its core, the same as Factoring. It's the sale or purchase of receivables of businesses at a discounted price. Invoice Discounting differs from factoring in that it is usually a confidential arrangement. Invoice Discounting is not like traditional factoring, where invoices are marked with a stamp indicating that the business used the facility.

A simple calculation similar to Factoring is to take a business's sales ledger balance (business clients only) and subtract 80%.

This indicates how much money is available immediately. If it's significantly more than what the business receives through an overdraft, then exploring further may be a good idea.

There are many steps to be taken with lenders before you can reap the benefits of a business financing tool. There are many variables to consider and an independent brokerage can help companies make the best decisions and guide them to the best deals. This service allows companies to evaluate all aspects and find the best deal.

These factors will help you make the right decision for your business. This will put you on the path to healthy cash flow that will allow your business to grow.