Factoring / Invoice Discounting Africa

Factoring / Invoice Discounting

Business Matters International provides support to find you the best financing solution dependent upon your trading profile.

The concepts of invoice discounting and factoring are very similar. They are both methods of invoice finance. The general rule about which one is best comes down to how efficient the credit collection, accounts and book debt department is. Generally large and established business or those collections department opt for invoice discounting and those who don’t opt for factoring.

Both services, Factoring and Invoice Discounting, provide finance against unpaid approved submitted invoices, however below are many differences:-

• Factoring provides many value added services such as full sales ledger and collections service
• Invoice Discounting does not include services such as full sales ledger and collections service

• A factoring company takes on the responsibility for the collection of invoices
• Under an invoice discounting facility the actual business takes on the responsibility for the collection of invoices

• Factoring is when a business sells its invoices to a third party and then the factoring company control the sales ledger and collects the debts.
• Invoice discounting is an alternative way of drawing money against your invoices. However, the business retains control over the administration of your sales ledger.

• The customer is aware of the fact that the invoices have been factored.
• The customer is not aware of the fact that the invoices have been discounted.

• Factoring gives business up to 85% payment for a submitted invoice. This enables a business improved cashflow.
• Invoice discounting works by the invoice discounting firm checking the business, its systems and its customers. The invoice discounting firm then agrees to advance a certain percentage of the total outstanding value of invoices

• Under a factoring agreement a business sell and completely assigns the entire rights to the submitted invoice.
• Under a invoice discounting facility you do assign or sell the invoice you just raise funds against a invoice or batch of invoices

• Factoring is more expensive than invoice discounting because with a factoring facility you are paying for an outsourced collections department.
• However with invoice discounting the business collects the invoices and deals with the book debt collections process.

• Under a factoring facility the customer is aware that there is a third party involved and so the customer may feel uncomfortable
• Under an invoice discounting facility the whole process can be kept confidential thus avoiding an embarrassment

• Under a factoring facility the customer pays the factoring company direct.
• Under an invoice discounting the customer pays the company as normal.