The Types of Single Invoice Finance

invoice-financeSingle Invoice Finance is a method that enables companies to draw cash from its receivables before payment is due or received from its customers. There are many types to it and today we shall discuss what they are all about and how they differ or come alike.

FACTORING VERSUS DISCOUNTING

  • Factoring

In this type of transaction, the cash advance received is in exchange for the right to collect against the invoice. Here, the burdens of collection alongside the tasks that come with it are passed on to the provider. The fee shall then be deducted from the total amount or value to be received.

  • Discounting

Discounting differs in a way as the invoice is used as a security. The company receives the advance but retains the collection function. Upon its completion, the company shall repay the provider of the amount advanced plus the fee.

WITH RECOURSE VERSUS NON-RECOURSE

  • With Recourse

In the event that the owing customer defaults, the company is under responsibility to repay the provider with whatever amount it has previously advanced plus the fees. The loss of a defaulting invoice is borne by the company.

  • Non-Recourse

Should a customer default in payment, the risks and losses shall be completely borne by the provider. Compared to a ‘with recourse’ arrangement, this has a higher fee to compensate for the risks absorbed by the provider.

DOMESTIC VERSUS EXPORT

  • Domestic

The invoice used in this scenario pertains to a customer whose company or residence is within the same territory or country as the company.

  • Export

In stark contrast to the former, export single invoice finance caters to business entities that wish to bring their trade overseas. The receivable is due from a client or a customer from a country abroad, in other words an importer.

CONFIDENTIAL VERSUS DISCLOSED

  • Confidential

In a confidential arrangement, the use of single invoice finance is not disclosed to the customer. They won’t have the slightest idea that the invoice due from them is either factored or discounted. This is often used by entities to avoid confusion in terms of payment collection.

  • Disclosed

As for disclosed single invoice finance which is the complete opposite of the former, customers are made aware of the transaction for purposes of full transparency. But the option to disclose or not is simply a matter of preference and not a necessity.

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