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General information about invoice factoring.
At Abridge finance we have a flexible approach and tailor our service to suit the needs of our clients.
If you have any queries regarding security please follow this link factoring and security
The following information is only a guide to how Invoice discounting works.
Factoring is fast becoming the most popular cash flow solution on offer today. Factoring may be fairly new to New Zealand but it has been around for a very long time.
Factoring or invoice discounting is the conversion of a company's commercial invoices or accounts receivable into immediate cash by selling or borrowing against those accounts at a discount.
By factoring your invoices you can get 70-90% of the invoice value transferred into your account with in 24 hours of sending the factored invoice and documents to the
finance company.
There are generally two methods of factoring.
One method is factoring with out recourse. The invoice is factored to a finance company for 70-80 % of the invoice value. The finance company takes full responsibility
for the dept, the client receives the payment and never hears about the invoice again.
This is rather an expensive method of factoring and not very popular.
Factoring with recourse
Factoring with recourse presents a smaller risk to the Finance company as the client is unlikely to take on customers with questionable trading history or in high risk
industries.
Factoring with recourse is the most popular and effective method of factoring, the invoice is factored back to the finance company who pays 80-90% of the invoice value
immediately. The remainder of the invoice (less costs) is paid upon receipt of payment. The client is responsible for the customer, if the payment is not received
on time the client may be asked to repay the finance company along with interest owing then seek payment from the defaulting customer.
The average value of receivables factored is often based on an agreed maximum or ceiling of for example $50.000.00 at any one time.
Security
No liability should appear on a company's balance sheet due to factoring, the client or company simply sells or borrows against one of its
assets (accounts receivable) at an agreed price to obtain a more liquid asset.
Factoring is not a loan with funding based on the company's ability to repay. Factoring
is a receivable credit line and needs no other collateral. It can be drawn down on demand allowing the client to offer terms or meet demands from customers who pay on
the 20 th of the month following. It allows the client to increase volume, take on extra work/contracts that they would not be able to sustain due to cash flow.
A business can have a credit line with its bank with its other assets as collateral and a second credit line with a factoring company with the receivables only as
collateral!
Documentation
There is usually a contract (agreement to factor) that is renewed every 12-24 months where the finance company and client agree on the terms with in the contract.
There may also be a small loan summery document used for each and every separate sale or service. These loan docs contain the discount rate or percentage, the customer details, details
of the invoice and they are signed by the client or authorized person handling the sale. The original invoice received by the customer contains a reference written or
stamped informing the customer that the invoice is factored to the Finance company named along with the postal details.
At times clients may not wish the customer to know the invoices are factored so an un disclosed factor service may be introduced.
Find out how we can help your cash flow, simply follow the Business finance link above right or phone us now on 0800 401743.
Our main area of business is Auckland, Waikato, Whangarei and Kerikeri for central Northland.
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