There are a number of types of invoice finance, in essence the end result is to gain instant access to a large proportion of the cash tied up in a companies accounts recievables or invoices that have been issued.
With the majority of business to business ventures providing goods and services on the basis of credit, this type of finance is often a better alternative to a bank overdraft. One major advantage being that as business grows and the volume and value of invoices increases so does the invoice finance funding.
Where the whole accounting function is Factored, the Factor essentially takes over the sales ledger and sends out invoices on the clients behalf. Typically 85% of an invoice is made available to the client on issue, with the balance paid at the point when the invoice is paid. This payment is of course subject to a small admistration fee of perhaps 0.5 to 1 % and interest is charged on the advanced payments. Naturally there is an additional benefit to the client of making a saving in real terms on his accounting function.
Technically Invoice Finance may include the following catogories:
• Invoice Discounting ( Normally Confidential but could be Disclosed )
• Recourse Factoring – The Factor has recourse in the case of invoices unpaid after the specified period
• Non Recourse Factoring – The Factor provides protection against unpaid invoices
• Maturity Factoring – Full payment following a specific time frame.