Explanation of financial term - Invoice Factoring

Cashflow financing

There are two types of cashflow financing:

This is how they work for you and your company cashflow.

Invoice discounting

You send your customers' invoices for products/services to an invoice discounter. Typically, invoices are given to the discounter in a sales day book listing.
Your customers don't know you are using an invoice discounter.
The invoice discounter pays up to 90% of the invoice value to you - with you running your sales ledger. You take care of telephone contacting and send out regular account statement releases as normal.
You collect payments from customers.
You then bank the payments into a trust bank account and inform the invoice discounter of payments made.
The discounter uses funds from the trust bank account to give the balance outstanding on the invoice value, minus discounter charges, to you.

You inform your invoice factor by email or post that you have issued an invoice and your factor will give you up to 90% of the invoice value.
The remaining debt, less any factor charges, is transferred to you once the debt is settled.
The advantage of invoice factoring is that a factor takes control of credit management - allowing you to focus time into running your business.
All tasks such as sending statements and reminders to customers will be discussed between you and the invoice factor before customer communication takes place. This mechanism maintains good client relationships.