Understanding Invoice Discount Example for Entertainment

On invoice discount example for Entertainment

factoring and invoice discounting invoice Finance can be divided into two categories factoring and invoice discounting factoring overview a factoring company will purchase a company's account's receivable Ledger and will provide for each invoice on The Ledger that is approved the invoice financier will become responsible for The Ledger it is their job to chase up debtors and allocate payments received against outstanding balances the value that the invoice financier brings to the table is his or her experience in debt management here is a step-by-step look at the process of factoring a company sells goods or services to one of their customers this customer is sent an invoice by the company the customer is the debtor on the invoice will be a notice of assignment this is to notify the debtor that an invoice financier is involved in the debt management the company sells the invoice to the invoice financier the invoice financier pays some of the money due from the invoice to the company when the invoice reaches payment date the debtor will send payment to the invoice financier the invoice financier once he or she has removed fees sends the balance to the company different types of factoring products there are five types of factoring products one recourse factoring recourse is a legal term and it means the right to demand payment in recourse factoring if the debtor does not pay their debt after the time delay specified on the invoice then the factoring company has the legal right to reclaim the money it's sent to the company as a result of entering into a factoring agreement for the unpaid invoice with recourse factoring the invoice financiers protected against unpaid debt two non-recourse factoring this is the opposite of recourse factoring with this product the invoice financier does not have the legal right to recall its early payment if the debtor does not pay free client handles Own Credit Control chhole in this type of factoring Arrangement it is the company who manages the credit controls whereas in factoring it is the invoice financier who manages the debt from the unpaid invoices in this situation the company deals directly with its customer to facilitate the payment of invoices four export factoring for a British company export factoring is used if their customer is outside the UK this product will use an affiliate to do the Credit Control this affiliate will be a factoring company in the same country as the customer once the affiliate invoice financier has secured payment from the customer it will send the money to the uk-based invoice financier who then takes their fees and remits the balance to the British company five service only factoring this is a factoring product for companies that do not require funding it could be argued that this is not really a factor in product since a company does not get early payments by selling its invoices to an invoice financier rather the company hires the invoice financier to provide credit controls in this Arrangement the invoice financier might offer credit cover for unpaid finances it can be seen that the different types of factoring products Focus mainly on who is financially responsible for failing to secure payment for an unpaid invoice the other main consideration is who provides Credit Control in the case of export factoring the main difference to recourse and non-recourse factoring products is that a second invoice Finance series used who has local knowledge invoice discounting with invoice discounting the company sells unpaid invoices and bulk to an invoice financier the company is responsible for collecting on these invoices here is a breakdown of the invoice discounting process a company sells goods or services to customers and sends them invoices the company sells a batch of unpaid invoices to an invoice financier the invoice financier pays some of the money due for the invoices to the company the company collects its money from its customers and places the cash in a joint trust account this account is set up by the company and the invoice financier crucially it is only the invoice financier that can make withdrawals from the account the invoice financier withdraws the money from the joint trust account deducts the fee and sends the balance to the company different types of invoice discounting products there are three types of invoice discounting products that Banks and factoring firms offer they are one disclosed invoice discounting in this type of invoice discounting the invoices will hold a notice of assignment so the customer can see that an invoice financier is involved two confidential invoice discounting as the title suggests this is the opposite of disclosed invoice discounting in this instance the invoice does not hold a notice of assignment the arrangement between the invoice financier and the company is kept confidential free non-recourse invoice discounting in this type of invoice discounting if an invoice is not paid by a debtor then it is the invoice financier who absorbs the costs as mentioned above recourse means having the legal right to reclaim money in the case of bad debt without the right of recourse the invoice financier cannot reclaim its prepayment if the debtor defaults in summary invoice financing can be considered to consist of two categories factoring and invoice discounting the one key difference between these two categories is that in factoring the money from the invoices are paid directly into the account of the invoice financier in invoice discounting the money is paid into a joint trust account also it is the seller that does Credit Control and invoice discounting the competence of the invoice financier is crucial in both factoring and invoice discounting their debt management skills are as important as the funds they provide to a company seeking the early release of money from its generated invoices so much so that companies often use invoice financiers to just control debt rather than procure funds against unpaid invoices