Main Product Types - Invoice Discounting (or undisclosed Factoring)
Invoice Discounting (or undisclosed Factoring)
Invoice Discounting is a form of invoice finance that dominates the UK market and is established (and growing) to varying degrees in many other countries.
Invoice discounting is usually a non-disclosed facility, i.e. unlike factoring, the Buyers are not aware of the Factors involvement.
A Factor will purchase the sales ledger and provide funds to the Seller against approved debts but will not undertake the collection of the debt, which remains the responsibility of the Seller.
All Buyer monies are directed to a joint trust or nominated account and the Seller will deposit any/all buyer payments received into that account, and it has no rights to withdraw funds. The Factor will usually transfer those funds to their own account at the close of business each day.
Historically, most invoice discounting facilities were managed on a bulk basis where account level totals rather than each individual invoice were entered onto the Factor’s system. However, improved technology now means that while the Factor will still finance at an account level, invoice level data can be transferred and retained where the Seller accounting software is compatible.
Routine month end reconciliations and regular audits of the Seller are usually applied. If the facility operates on a recourse basis, then third party bad debt cover can be sourced and assigned to the invoice financier if required.
Invoice Discounting is not available in all markets as some jurisdictions may not allow invoice finance where the assignment of each invoice is not notified to the Buyer and some legal systems do not allow nominated bank accounts which are in the name of the Seller but owned and controlled by the Factor.