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factoringcompare.com

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Factoring and invoice discounting news and views

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Types of factoring or invoice discounting

The main services are described below using 'traditional' industry terminology which the majority of factors and invoice discounters use, and in any event, will all recognise. It should be noted that services differ slightly between invoice financiers. Services provided by factors are many and varied. The basic ingredients for these services are as follows:

With or without bad debt protection (recourse or non-recourse);
With or without disclosure to customers (non-confidential or confidential);
Where collection of debts is undertaken by the factor or by the client on behalf of the factor;
Agreements which provide for the assignment of all debts as they arise (whole turnover) or which provide for each debt to be offered to the factor (facultative).

The situation is further complicated by inconsistency in the labelling used by factors for their various types of services.

In recognition of the difficulty that many businesses encounter with much of the terminology surrounding receivables finance, some factors are now avoiding the use of the terms 'factoring' and 'invoice discounting' and prefer invoice finance.

Factoring can ease cash-flow problems and provide some predictability in a rapidly changing situation. Factoring can also increase the availability of working capital and alleviate cash-flow problems when a company takes on new customers; gains new customers; experiences a slowdown in collections; has increases in bad-debt levels; has heavy capital investment program or just needs to cover unforeseen cash requirement. Factoring would be their to help.

An acquisition, for example, can expose the firm to a new and unfamiliar customer base, thereby creating a need for enhanced factoring receivables management and that is where factoring can help. And since granting trade credit is comparable to making an investment in another company, a factoring companies credit protection helps prevent unsound investment decisions.

Author: Toni Nicholson, factoringcompare.com, 19/10/2009