What
is Invoice Factoring?
Invoice factoring
is a process whereby an invoice finance company
offers payment to a business based on the amount
of money owed by its clients. The business may
then use the cashflow to cover payroll, purchase
necessary supplies and pay overhead expenses
such as rent, utilities and other day-to-day
costs.
Full-Service
Factoring
A full-service
factoring company may take on the responsibility
for collecting customer invoices, including
bad or unpaid debt. This may be an advantage
for a company that does not have the time or
resources to follow up on collection activities,
like making phone calls and sending second and
third reminders to late-paying customers.
Credit Management
A factoring
company may review a customer’s credit
ratings, gathering valuable information about
clients and potential clients that can help
a business make sound financial decisions. Some
factoring companies offer protection against
bad debt and collection of late or missed payments,
depending on the contract with the business.
Invoice Factoring
v Invoice Discounting
Invoice factoring
usually implies more services offered to the
business than in cases of invoice discounting.
Factoring companies may have direct contact
with the business’ clients, engaging directly
in invoice collecting activities, while invoice
finance companies deal only with the business,
allowing it to collect from its own customers.
Non-Notification
Factoring
In
the case of non-notification factoring, the
customers are not notified of the relationship
between the factoring company and the business.
It is important for the business to have a clear
understanding of the collection practices of
the factoring
company, as it may affect future customer relationships.
|
