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Debt Factoring & Invoice Discounting Simplified

Debt Factoring & Invoice Discounting How it Works | Costs and Savings of Debt Factoring & Invoice Discounting | Advantages and Disadvantages of Debt Factoring | Debt Factoring Glossary| Sitemap|

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Debt Factoring / Invoice Discounting Cartoons

Factoring is selling your customer invoices for cash

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Advance Payment | Service Fee | Interest Fee | Rebate Payment



You receive an advance payment which can be anywhere between 70% to 90% of the value of the invoice

Service Fee (also called:- Factoring commission, Administration Charge)

There is a charge for the factoring services (debt collection, sales ledger administration, credit control, debt protection).  This is how the factoring company makes there money

Interest Fee (Also called:- Finance Charge, Money Charge, Discount Charge)

Interest is charged on the advance payment.  But only on the money that you use (like an overdraft facility). 


You receive a final payment, which is the full value of the invoice minus the advance payment, the service and interest charges


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IMPORTANT:- Your INTEREST FEE will be much LOWER if you don't use all your advance payment at once. YOU ONLY PAY INTEREST ON WHAT YOU USE (like an overdraft facility).

Rollover words for descripions on how savings are made

Bad Debt or Credit Insurance | Renegotiating Overdrafts or Loans | Supplier Early Payment Discounts | Sales Ledger Admin & Expenses | Debt Collection Admin & Expenses | Credit Control Admin & Expenses | Open Item Accounting | Debtor Days Reductions | Interest Savings (Unused Finance)

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Disadvantages of debt factoring .

Will my customers be upset that I am using a factoring service?

If this was a real concern the solution is to use a confidential invoice discounting facility. This way your customers do not know that you are using invoice discounting and you have contol over managing your sales ledger, collections and credit control.

The concern though is misplaced. As you would expect significant research has been done on this and the results show (e.g. Hawkins) that in reality this is not a major concern for customers and that companies that actually use factoring or invoice discounting are overwhelmingly happy with it, especially when compared to the satisfaction levels of other forms of finance.

It isn't hard to see why this is the case, as FACTORING ACTUALLY IMPROVES THE FINANCIAL STABILITY OF A COMPANY. The reasons for this are:-


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