What You Need to Know About Factoring Invoices Glossary Invoice Discounting

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There are a lot of terms to understand when it comes to factoring invoices. You might have to understand the differences of factoring accounts receivables from invoice discounting (both are similar but they do have slight differences). You might have to know the different terms and agreements that factoring companies use when dealing with businesses and their clients. In all of this confusion a glossary of basic terms could be very useful. Take the time to consider the following factoring invoices glossary invoice discounting list:

 

Common Glossary Terms

  • Accounts receivables – this is your invoice or the sales ledger that encompasses all of your profits from the client
  • Assignment – this is the official transfer of collection rights to the factor, enabling them to receive the payments (the accounts receivables)
  • Facility limit – this is the maximum amount that can be factored for a single company. Some factors will set a limit on how many accounts receivables can be bought and sold
  • Minimum term – this is the minimum contract period; many factors will require that your contract period with your client is good for at least six months
  • Non-recourse factoring – in this agreement you are 100% insured of debt responsibilities, protecting you from bad debts
  • Recourse factoring – you are not protected from bad debts and thus collecting the due amount now falls under your shoulders
  • Sales ledger – the structure that will encompass all details regarding sales invoices
  • Service charge – this is the processing fee that is required for the factor to assess the invoice and the client’s credit history

 

Understanding Factoring Invoices from Invoice Discounting

Another factor that a factoring invoices glossary invoice discounting glossary should contain is the difference between factoring invoices and invoice discounting. They are both very much the same since they are all about selling accounts receivables to a factoring company but the main differences lies on control over your ledgers and the visibility of the factor.

 

When you go for regular factoring the client you work with will be aware of the factor. This is because the factoring company will now be in charge of your sales ledger and will be the ones handling all transactions. They give you the amount indicated in your invoices (albeit at a discount) and will be the ones to collect the amount from your client later on. This means the payment from the client will never even pass through your bank account – they go directly to the factor.

Invoice discounting can seem a little bit more attractive because in this type of factoring the factor is not visible. The client has no clue that you are working with a factor. This means you have full control over your ledger and all of your accounts. It also means that you are now responsible for collecting the amount from the client and then paying the factor for the advanced cash as according to your agreement.

There are a lot of different data that you need to comprehend before finalizing a deal with a factoring firm. This is crucial information that you will learn when you have a reliable factoring invoices glossary invoice discounting guide.

Check out our Factoring Glossary here

 

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Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

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