Single Invoice Discounting Benefits and Disadvantages

Single invoice discounting is another common type of financing and funding means that companies take into consideration whenever they are looking for other sources of cash. We all know that one common source of such are the company’s own sales unfortunately not everyone pays in hard cash. Others purchase from you on credit therefore your financial resources can be locked up in your receivables and their invoices. To free them up, discounting can be used.

Like most things, it has its own set of benefits and disadvantages. Let’s start with the cons below:

  • single invoice discountingYou may be asked to buy the invoice back if your customer doesn’t pay for it. This is the case for a with recourse invoice factor as you retain all risks of nonpayment. To do away with this, go with a non recourse service where risks are shifted from you to them. This however can cost you more than the former.
  • Getting the wrong people can irritate your clients. There are highly unprofessional firms who will irritate the hell out of your clients to ascertain that they do pay on the given date. This is what happens if you fail to research and hire the wrong factors.
  • You do not get the whole value of your receivable in full. Although this is quite expected as factoring will always involve a fee. It will however not decrease it to a large extent. In fact you can get up to ninety five (95%) of the amount in advance but if you are one who does not prefer this then invoice factoring is definitely not for you.

Now, we proceed with the advantages:

  • It is fairly quick and easy and will require less hassle when compared to applying for a bank loan. In fact, the funds can be available in as early as twenty four hours. That will surely provide for emergency situations.
  • The fees or expenses associated with it are also considerably lesser as it will only be regarding the invoice you subjected to your chosen factor.
  • It can hasten up the life of your receivables therefore you wouldn’t have to wait for days, weeks or months before you get hold of the cash.
  • Again as stated earlier, a non recourse type will remove any likelihood of doubtful account expense loss.
  • Although technically a loan, it does not provide the same effects. Single invoice discounting involves using your receivable as collateral for the funds you advance. However, you are not going to pay for it but your customers who owed you will do. It also does not affect the liabilities portion of your financial statements.

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