Invoice Discounting
Definition of Invoice Discounting
Also known as Recourse Factoring, Invoice Discounting is the most common type of factoring transaction. Unlike traditional factoring,
the third-party financier (factor) has recourse against the client in the event that the client's customer defaults on the debts
to the client.
The credit risk does not transfer to the financier, but remains with the invoice or accounts receivable seller.
This type of factoring is generally the least expensive for the seller because the risk of non-payment remains with the seller.
Unlike its European counterpart, however, American invoice discounting transfers control over the receivable to the financier.
The seller's customers are queried by the financier regarding transfer of the receivable (invoice to be discounted) as part of the
due diligence process involved in the decision to purchase the invoice from the seller. The seller's customer agrees to pay the
financier directly as a result of this transaction.
Benefits of Invoice Discounting
As a business owner, you know how important it is to having your receivables paid on time or even early. The biggest advantage
of invoice discounting is the acceleration of positive cash flow to the business. When customers are slow to pay, working
capital reserves can rapidly be drained, leaving the company in precarious financial positions.
Who offers Invoice Discounting?
Chase Group has painstakenly researched the US and Canadian secondary and alternative finance markets to identify the best, most reputable
and highest caliber financial service providers.
As a result, we have compiled a who's who directory and rating system for service providers
nationwide and throughout Canada. Contact Us to receive a recommendation
for your specific needs. There's no charge, so don't delay.
What Does Invoice Discounting Cost?
Costs to the invoice seller vary, but are nominal in most cases. In many cases the final cost of invoice discounting can be as little as 3%
of the total accounts receivable purchased by the factor.
Is Invoice Discounting Right for Me?
Invoice discounting can make good sense for companies suffering from chronic slow-payment of invoices by customers.
Some examples include temporary placement agencies, contractors, sub-contractors and companies who have heavy payrolls.
To qualify for invoice discount advances, several criteria must be met. The invoice seller must:
only offer business-to-business invoices for sale
usually have fair or better personal credit scores
not sell more than 50% of outstanding receivables (as measured in dollars)
along with the company, be willing to personally guarantee payment of the invoice
.
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