Single Invoice Finance has proved to be one of the most effective means by which businesses get to derive cash without having to suffer the hefty consequences that traditional credit brings. How so? That’s what you’re going to find out today.
Having two major options under its belt, Single Invoice Finance can either be int eh form of factoring or discounting.
In factoring, businesses sell the right to collect against a particular receivable to the provider who in turn provides an advance equivalent to at least 80% of its total value. The transaction shifts the burden of collection from the company to the financing institution. The former then uses the cash as it sees fit. The latter on the other hand waits until maturity and collects from the owing customer. Upon completion, the remaining balance less the fees shall be forwarded.
In discounting, businesses use such invoice as security in exchange for an advance received of its value which it can use as it deems proper. The burden of collection remains with the company. Upon maturity and once collection is complete, the entity is bound by terms to repay the financial institution of the advance received plus fees.
Although slightly different, both factoring and discounting provides the same benefits as follows.
For one, they are easier to process. With lesser requirements and the creditworthiness of the customer considered (not the company’s), the application process down to the approval and the cash release is relatively fast. Some financers can even process this in a matter of twenty four hours.
Second, there is only one invoice to be used. Otherwise known as single or selective invoice financing, it is a onetime transaction. There are no contracts involved and the fees shall only apply to one. The entity shall also have the complete control and can choose which invoice to use. How often the service is to be had and when shall also rest in their shoulders.
Third, it’s a good way to inject cash into the system. Because it’s fast, it is a tried and tested method that helps a dwindling cash flow and helps strengthen working capital. It’s also one way to hasten collection.
Lastly, Single Invoice Finance is no debt. It’s not a loan or a credit or a liability. Therefore, it doesn’t have the strings attached to one such as interests and penalties. It is an asset transaction and is reflected in the books as such.