Invoice Discounting - Definition and Objectives
Invoice discounting is the way of getting back money from customers using invoiced debtors. Many businesses rely on such services to save time and money. It's the process to keep cash flow of a compan...
Invoice discounting seems to be the same as invoice factoring but customers are unaware of the fact that another party is collecting the debt instead of the main party. Both perform in the same manner however they may be some differences when it comes to discretion. In factoring it's up to the borrowers to collect payments from the buyers.
Invoice discounting is an effective way to ensure that payments are made and they are made fast. Even consumer can obtain discounts based on the purchase price if they make payment well in advance within the due date. However if there is delay, it may result in escalating interest in addition to cost of services or product for the delay period.
Some cash rich companies are performing in the reverse way. They are extending credit to the suppliers who find it difficult to get interest at such low rates outside. Thus the buying company gets heavy discount from the suppliers even without payment delay.
Actually both business and customer can truly benefit from Invoice discounting. A proprietor could easily understand when their payments are going to be met. It even help abolish the system of long term payment, because the loan is returned every time client clear payment for the invoice. More importantly, business has the cash flow in hands which may be used for development in various areas. The working capital is the vital criteria while running a business because through this you can explore immense marketing opportunities. Add to that invoice discounting is available at cheaper rate than traditional loans and overdraft.
Even the customer greatly benefits from this service for they can make payments at discount rates.
In invoice discounting businesses opt for the right factoring companies and then hand over the invoices of customers to them. The factoring then calls up the customer and acquires the payment on behalf of the main company. The objective of factoring companies is to lower accounts receivables so company doesn’t depend needs to get money through financing loans and debt issuance. Another goal of invoice discounting is to bring about discipline among customers and clients so they make payments within due time.
This is great for business to have constant generations of money without dealing with customer directly. Those employees in the collection department could be easily shifted to other areas of business. This enhances efficiency and growth. The idea is perfect for business in the middle of cash crisis because factoring could only help you out of the situation. Even sometimes reputation in the market and a good relationship with factoring companies can lower the service charge considerably. Thus business could rely on more savings.
Cash flow problems in a company should be taken seriously otherwise it may have bad future. What you need is the guidance of a specialist company to steer away from deficits and problems.
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ABOUT THE AUTHOR
The author writes for invoice-finance.com which specializes in factoring. For more information on Invoice Finance contact Redge.