What are Invoice Factoring and Discounts Differences and benefits
What is factoring? Let's look at an example. Person "A" is doing a good business right now. "A" sold some widgets (probably 10). But he has to wait two months for this payment. In such a situation, he simply cannot sit and wait for money. You need to maintain enough cash flow to grow your business. And here is the concept of factoring.
What is factoring?
This is a financial transaction in which a company sells invoices (credits) at a discount to a factoring company (also called a third party). Currently, the company offers about 80-95% of this amount immediately, fulfilling immediate cash needs.
Four main types of factoring-
In this liquidity management process, the author then collects the payment from the creditor and refunds the remaining amount less discounts or cash fees.
Many markets consider the concept of factoring as a discount on invoices. However, there are subtle differences between the two concepts of cash flow management.
What is an invoice discount?
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The company borrows cash as collateral without using any outstanding invoices. The invoice reduction company promises to pay a certain percentage of the total credit. However, after the creditor makes the payment, the company must pay the interest on the loan to the loan reduction account.
What is the difference between the two liquidity management tools?
1. In factoring, factors dominate the sales book. In the meantime, you have complete control and you can keep your invoice secret.
2. Even in the first way, I multiplied your debt with these payments. During billing, you need to do this as usual.
3. The customer is clearly aware of the relationship with the factoring company, but the entire process with other companies remains completely unclear.
Benefits of these liquidity management tools:
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There are reasons why companies constantly employ factoring companies to grow and expand economically. The advantages of these two tools are:
1. You can receive cash immediately within 24 hours.
2. Release up to 95% of the amount from pending invoices.
3. No properties other than security are required. So it is safe.
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4. The amount of financing may have a positive effect on sales.
5. In addition, trade credit experts also provide excellent management advice.
These methods allow companies in other industries to effectively focus on different resources.
Companies in a variety of industries, including manufacturing, design, recruiting, and printing, can use these services to better manage their finances. Startups and weakly growing companies can also take advantage of this opportunity.
Another tip: When hiring a trade credit expert, choose a reputable company that guarantees fast (within 24 hours) and secure funding. Look for companies with high upfront payments and low factoring rates. Manage your money and grow your business in smarter ways.