Category: invoice factoring

Things People Confuse About Invoice Finance

invoiceJust because something’s famous doesn’t mean it’s completely and wholly understood. Take invoice finance for example. This receivables financing method has been in popular use for decades and yet people still find something to confuse about it. Sad, we know but we’re here to help end that or at least lessen it for the mean time with better information and myth busting. Are you ready? Because we sure are.

#1: Is it a loan?

No it is not. Invoice finance may be a funding method but it is an asset transaction. In other words, it creates zero liability because it isn’t classified as one to begin with. When utilized, it decreases trade receivables, increases cash and debits an expense account for the service fee. Additionally, it does not come with interest or an asset-based collateral requirement. Using it will not affect the entity’s credit score and it will even help the financial reports look more attractive as it aids in liquidity.

#2: What happens to my receivables?

Invoice finance involves the sale of the rights to collect against a customer invoice/s in exchange for a cash advance on their value. This means that the collection function including its costs and burdens , at least as pertains to the invoices subjected to the financing arrangement, shall be transferred to the provider or the financial institution. The receivable shall remain to be under the business’ name and control but the burden to collecting them shall be shifted.

#3: Do I risk customer relationship?

No considering that you choose trustworthy and quality invoice finance companies and providers. Make sure to inquire, research and read about them thoroughly first to identify who can indeed deliver. Businesses may also opt for a confidential arrangement where customers are not made aware of transaction between business and financier.

#4: Is it expensive?

Not at all. The fee involved can either be on a per period basis or a onetime thing depending on the specific type of invoice finance chose. Regardless, this is significantly cheaper compared to other financing methods because it is fixed and comes free of any interests.

#5: Can all businesses use it?

Another great thing about invoice finance is that it can be obtained by all businesses regardless of type, industry, size or length in the market. Even startups, small to medium scale enterprises and recovering entities can use it. After all, the cash is derived from a receivable and not a borrowing.

What it Means to Use Single Invoice Discounting

invoice discountingWhen asked about the trickiest ball to juggle in business, most entrepreneurs would agree on financing. It’s a sensitive topic and one that’s also highly debated. After all, there isn’t a one-size fits all solution when we talk money matters. But if there’s one that has risen in use and popularity over the past years, that would be single invoice discounting. So what’s the catch?

Single invoice discounting represents a category in receivables financing that allows businesses to advance the value of a specifically chosen customer invoice thereby receiving its monetary value prior to its maturity.

What happens is the company chooses an invoice of significant value and one that fits the requirements of a pressing or urgent expense. It shall then be used as a security for the advance. The procedure takes fairly quickly with majority of providers able to release cash in a matter of only twenty-four hours. Upon receipt of the cash, the company uses it as it sees fit. Once it matures and collection has been completed, it then goes on to pay the provider for the advance taken plus a fixed predetermined fee.

The great thing about single invoice discounting is that it’s a zero liability mode of financing. This means that it comes with zero interests and there are no asset-based collateral requirements. Not surprising as the method is known to be an asset transaction. It doesn’t categorize as a debt, credit or borrowing. Instead, it is recognized as an increase in cash coupled by a decrease in trade receivables and a debit to an expense account to record the onetime fee.

Speaking of which, the fee to be paid to the provider is equivalent to a small percentage of the total invoice value which can oftentimes be around 5% or less depending on the agreement. It is also a onetime fee since single invoice discounting is a onetime transaction and does not involve lengthy contracts.

Many entrepreneurs favor the method because apart from being a zero debt option, it helps improve liquidity by freeing locked up cash within invoices. It even hastens collections, betters cash flows and strengthens working capital which is great for any business. We all know that money is the lifeblood of any organization and without it operations would not run and push through. Moreover, single invoice discounting allows businesses to better tie up their actual cash to their level of sales.

Cash Flow Mistakes and How Single Invoice Finance Can Help

cash flowA company’s cash flow is crucial because it depicts the actual inflow and outflow of cash and is thereby a great indicator of liquidity. Accounting-wise, it’s one that needs to be kept an eye on because sales does not exactly equate to profits or let alone currency. Remember sales on credit? Good thing we have Single Invoice Finance in the form of factoring and discounting.

The financing options have proven to be very useful to help business entities with their liquidity issues as well as to help them raise capital without having to go for a debt. As much as these methods are often used for emergency purposes, they are also a good solution to help ease the pain as resulted by these cash flow mistakes.

  • Lack of an Emergency Fund – Lastly, a cushion or emergency fund should always be present. This emergency cash allocation that is to be used in dire situations such as when liquid funds are not available due to certain factors and scenarios becomes useful as the need arises. This safety net can be a company’s saving grace.
  • Lenient Credit Terms – It is important that you take a good look at the terms and conditions set out to customers who purchase on credit. They need to be strict but reasonable, clear and specific. Moreover, it is a must to assess their credit score before extending the transaction.
  • Long Outstanding Receivables – Accounts receivables are not bad per se but if they become long outstanding then they cease to be quite the promising asset they were supposed to be. Long outstanding accounts mean that they have gone past their maturity. They remained uncollected and therefore useless and illiquid. Overtime they can even be written off as bad debts and therefore losses.
  • Mismanaged Accounting – To better gauge and assess one’s cash flows, proper accounting of all transactions are a requisite. There has to be a system set in place to raise red flags when disadvantageous circumstances arise. Accuracy and timeliness are also crucial here. If records are erroneous or are not recorded and made available in time then all efforts will remain in vain.
  • Overestimated Sales Volume – There is nothing wrong about optimism in business but everything has to be set on a realistic scale. Sales won’t triple in a month by some miracle. If one overestimates and makes use of unrealistic basis then there’s the risk of spending more thinking that demand is on a high.

Single Invoice Finance can do so much as to ease a liquidity and cash flow issue but it’s still best to avoid the aforementioned mistakes at all costs.

Single Invoice Factoring Dos and Don’ts

dos-and-dontsFinancing is one very sensitive issue that businesses make sure to handle with utmost care and caution. There are many methods and alternatives to choose from, each with their varying uses and set of pros and cons. One of the more popular options out there is what we call Single Invoice Factoring and today we’ll discuss a few sets of dos and don’ts to help everyone master the best use of the said method.

Do understand what it is all about. It would be outright silly to make use of it without fully grasping and understanding its procedures, uses, costs, effects, advantages and disadvantages. A smart and successful businessman thinks before he acts.

Don’t transact blindly. Choose the best Single Invoice Factoring Company in your area. Research well. Ask around for feedback and don’t hesitate to interview and inquire your shortlisted candidates.

Do assess customer creditworthiness. To avoid having any problems with delinquent customers and ultimately your factored invoice, make sure to only extend credit to those who are capable of payment.

Don’t mix it up with discounting. With factoring, the provider is responsible for the payment collection and the transaction is a sale of an asset, the right to collect. With discounting, the company retains responsibility over payment collection and is akin to borrowing with the invoice used as collateral.

Do remember that it is not a loan. It is by no means a liability transaction and therefore produces zero debt, interests and other strings attached to it. It is reflected as a increase in cash and a decrease in receivables instead.

Don’t worry about customer backlash. There is nothing wrong about factoring receivables so customers generally don’t hold it against companies. However, for reasons of avoiding confusion with payment, a confidential arrangement may be made so that customers know nothing about the factoring.

Do use it as you please. There is much flexibility and freedom in the use of Single Invoice Factoring. Companies can use it whenever they want to and as frequent as they would like. The choice of which receivable to use will also be the decision of the business and no one else’s.

Don’t factor each invoice individually. If you find yourself using Single Invoice Factoring for all your receivables, it would be best to switch to Bulk Factoring instead. It’s quite the same except for the fact that the latter advances all receivables as a whole instead of one by one making room for more cost savings.

Telltale Signs That You Should Consider Single Invoice Finance

Raising funds for your business is no easy task. In fact, having a business is no child’s play! Time, effort and not to mention capital, has to be put up. Before any profits are realized, so much work has to be accomplished first. As the old adage goes “No pain, no gain”. This holds very true for the corporate world. Capital, both monetary and industry wise, have to be put up.  Industry is all about finding the right people with the right talents for the job. Money is something that’s a little trickier than it sounds. Raising capital before putting up your company is one thing. Raising capital while on business is another. To help you with that here are some telltale signs which could mean that it is time for you to consider going into single invoice finance.

business losing“I hope my customers pay in time and where possible earlier…”

Not all purchases are made through cash. Some are made through credit. In some cases you want your customers to pay earlier but that is not completely possible. To recognize the value of your receivables, you can advance them through invoice finance.

“My bank loan is taking too long and is very restrictive and burdensome…”

Commercial business loans normally take long before approval. This makes them the least likely option for urgent expenses and disbursements.

“If we had more available cash, growth and expansion could be quicker…”

Because cash is often tied up in the invoices, they are unavailable for use for certain corporate ventures like expansion and purchase of new and better equipment.

“We have had a lot of opportunity loss lately…”

Opportunity losses are those that you incur when you fail to act on a particular prospect which could have increased profits. Lack of funds is often the biggest contributor to this.

“Our business partners do not like putting their personal assets up for collateral…”

Loans will always need collateral, both corporate and personal assets. Some investors and business partners do not like putting their personal resources at risk. Single invoice finance does not require your assets as collateral.

“We went into a nosedive during the previous period but now that things got better, we need funds to better operations…”

Single invoice finance will also prove beneficial for companies who have suffered losses and are slowly gaining back their profits. This is because most banks will not lend when they find you financially distressed. Invoice finance providers have no problem with this as they are concerned not on your financial status but that of your customers. Do remember that this is not only limited for use to losing businesses as it has in fact been employed by established ones due to its benefits.


7 Reasons Why You Should Consider Single Invoice Factoring

We’ve all known the different financing methods obtained by companies such commercial loans and receivables financing. Under the latter, two types can spring forth which are discounting and factoring. One common and popular type of the latter is what we call single invoice factoring. What is it?

It is frankly the same as the traditional type. It provides the same effects and has the same benefits. The differentiating factor is in the number of invoices. With whole turnover o traditional factoring, you sell your entire sales ledger thereby

1. It is quick and simple.

single invoice factoring ukWhen you need funds, especially in emergency situations, you want a process that is simple, crystal clear, easy and not to mention fast. If you need resources for expenditure due in five days then why would you go for a financing scheme that takes you a month before you get access to it? Single invoice factoring is simple and lighting fast. You can get hold of your needed funds in twenty four hours or less.

2. It can generate funds and therefore immediate working capital and cash flows.

Because of its swiftness, your business gets access to immediate working capital and a quick injection in the cash flow. This makes it easier for your business to pay suppliers thereby creating better relationships.

3. You release and get to use locked up cash.

You may have promising sales but the cash they generate may not be available to you. Also, you may have scored a particular sale but then you are not able to use its value. You’d have to wait out. Factoring can definitely hasten things up and you can advance the invoice’s value even before your customer pays.

4. You get to advance eighty five percent (85%) to ninety percent (90%) of the value of your invoice.

The remaining percentage to this will be forwarded only upon complete collection from your customers to whom the receivable is due. This remaining balance will then be less any fees.

5. It doesn’t require as much hassle as traditional loans.

You don’t have to provide quarterly and annual financial statements, asset listing, financial information on company owners, credit score and the like to the financial institution. This is because they will leverage not on your financial capability to pay but that on your customers instead.

6. It will not create a negative effect on your balance sheet.

Because it is not a loan, your balance sheet does not suffer increasing liabilities. In fact, you become more liquid as you can easily and quickly recognize and transform your receivables to cash.

7. It is cheaper and gives you more freedom than whole turn over factoring.

Lastly, single invoice factoring is far cheaper than the whole turnover type. You wouldn’t have to sell your entire sales ledger. You get to choose which invoice and when to advance its value.

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