Invoice Discounting - Canadian Business Funding
Express Business Funding
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Invoice Factoring vs. Invoice Discounting
Invoice Factoring and Invoice Discounting are business funding products that enable a company to free up working capital (cash) that is tied up in unpaid invoices. Though both will involve a third party Invoice Factoring (or Invoice Discounting) company like Express Business Funding to advance money against the outstanding balances owed by customers, there are differences between the two products:
-With Invoice Factoring, the third party company (the “factor”) takes full control of the invoices once they have been created. The factor will send the invoices to the customers with a Notice of Assignment (directing the customer to pay the factor directly), chase down slow paying customers for settlement of invoices, and manage the credit control of the business; approving the invoices that are valid for factoring. They are also responsible for processing the payment of invoices, meaning that the customers are fully aware of the business contract the client has with the factoring company.
-With Invoice Discounting, customers are usually unaware of the relationship between the client and the financing company. The client maintains responsibility for the issuing of invoices to the customer, all collection responsibilities, and approval of the credit of the customers.
The Benefits of Each: Invoice Factoring & Invoice Discounting
Although there are key differences between Invoice Factoring and Invoice Discounting, the overall benefits are basically the same:
-Releasing of 70% to 90% of the value of outstanding invoices within 24-48 hours
-Funding can be secured without requiring other assets
-Cash is freed up to either lessen cash flow problems or grow the business
-Supplier invoices paid promptly will increase the power to negotiate discounts
-Funding levels increase with turnover without ongoing time-consuming reviews
The additional benefit of Invoice Factoring or Accounts Receivable Factoring is that it comes with a complete outsourcing of customer credit review, collection services, and payment posting. For new companies that may feel short staffed, this enables them to focus time and resources on other areas of their business.
On the other hand, the additional advantage of Invoice Discounting is that responsibility for issuing of invoices, customer credit approval, and ongoing debt collection remains with the client and the customers often are not even aware of any cash flow issues the client may be having.
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