Frequently Asked Questions

Invoice discounting and Factoring explained

Invoice discounting is the process whereby a business can sell some or all its invoices to a third party (“discounting house”) at a discounted rate to increase the working capital of the business. It is a very flexible solution in the sense that the business can decide which debtors, and which invoices it wants to discount. The business can realise cash immediately of up to 80% of the invoice value through this process. From a risk perspective the discounting house looks at the debtor that is responsible for paying the invoices and not as much to the client requiring the invoice discounting.

Factoring is the process whereby a client cedes its entire debtors’ book to a factoring house as collateral and whereby the factoring house then advances up to 75% of the debtors’ book to the client. Clients generally make use of factoring where they have various debtors on their books, in general more than 10 different debtors. Through the factoring process the factoring house would take control of your whole debtors’ book and take over your credit control process whereby you would normally issue invoices to debtors and manage the collection process yourself. Only debtors below 120 days outstanding would qualify for factoring. All your debtors would have to pay directly to the factoring house. From a risk perspective the factoring house would look at the balance sheet of the client to determine if they qualify for a factoring facility.

One of the big differences is that invoice discounting is a far more flexible product compared to factoring. You can also access a higher percentage of your debtors through invoice discounting. With invoice discounting you can look at one or maybe two of your debtors to discount and leave the rest untouched while with factoring your whole debtors book will be implicated through the factoring process.

How does invoice discounting work?

You as the client continues to issue your invoices to your debtors as usual, nothing in this process changes.

You certainly can. You decide which debtors you feel comfortable with discounting their invoices and which ones not to discount.

You can decide which invoices you want to discount based on the cash flow requirement and needs of your business.

No, not at all. You don’t have to sign for a minimum period of 12 months for example. You can make use of the invoice discounting service as and when you need it, even if it means that you discount one month and then only again after two or three months.

  • Immediate increase in working capital;
  • Negotiate better terms and early settlement discounts with your suppliers and creditors;
  • Flexible product – you decide you much cash you need and which debtors to discount;
  • Same day payment into your account;
    Almost zero red tape and minimum paperwork required.
  • Almost zero red tape and minimum paperwork required.

What are the costs involved?

We charge a discounting fee of between 0.11% - 0.15% per day depending on who your debtor is and the amount that you want to discount per month. There are no monthly or minimum fees, you only pay for the amount of days that your invoice(s) are outstanding for.

Absolutely yes, we bare the cost of insuring your debtors, so you don’t have to.

Unlike with factoring there isn’t any minimum monthly fees or costs involved with invoice discounting.

Qualifying criteria

We can assist any new type of business entity, even though you only have been trading for a short amount of time. We specialise in assisting SMME’s and want to assist them to become successful. From a risk perspective we look at your debtor and not as much at you as the client.

Nothing much really. The idea of discounting your invoices has over the last decade become part of normal business practice, especially between larger corporates and their smaller suppliers and sub-contractors. Most corporates are continuously expanding their payment terms causing further cash flow pressures on their suppliers working capital. They understand the need of invoice discounting and or factoring as they are the ones causing the demand for the product.

We don’t dictate the credit terms that will be used. We work on the credit terms that were negotiated by you and your client, be that 30 or 60 days after statement for example.

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