Invoice Factoring

Invoice factoring can be defined as a procedure where the receivable accounts of a company are converted into cash. This is done by selling the receivable invoices at a discount, to a factor. This process is actually a beneficial financial option for the business organizations which are just venturing out. In fact, factoring is also a valuable option for the companies which are going through a phase of fast growth.

The companies which follow this factoring process are usually the ones to rely on the customers for the payment. The best thing about this whole procedure is that it rids the company of the tensions regarding the cash flow and helps focus in the business operation.

The Invoice Factoring Terms

There are some fundamental terms associated with invoice factoring, each of which is listed as follows:

• Account debtor- The other name for the customers of the client, from whom the factor collects
• Account creditor- The other name for client
• Accounts payable- Money owed or paid by the client.
• Accounts receivable- Money owed to the client or received from him.
• Advance rate- The percentage of money advanced by the factor to its clients on the sale of the invoices.
• Discount fee- The fee charged by the factor on invoice purchase.
• Reserve- The percentage of advance money minus the discount fee of the factor.

Functioning of Factoring

The functioning of invoice factoring can be summed up in the following series of steps:

1. A company is requested for services or goods by the customer.
2. The services or goods are delivered by the company.
3. Then the customer is issued an invoice by the company and the invoice is purchased by a factor.
4. Once the invoice is verified, cash is advanced by the factor on the sold invoice.
5. The factor is paid by the company’s customer.
6. Once the payment is received the reserve is released by the factor.

For More Information Please Visit:
http://www.hrhfundingsolutions.com/

By: Fedric Johnson

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Fedric johnson, SEO Analyst and Professional Content Writer,