What is Invoice Factoring?
Invoice Factoring is a method used by businesses to convert sales on credit terms for immediate cash flow. Invoice Factoring helps a business to release the money tied up in their sales ledger to fund their business growth or even to meet daily financial obligations that every business needs. When you use a factoring facility from the factoring company, you not only assign your outstanding invoices to the provider but also permit them to administer your sales ledger. Through this built-in flexible credit management facility, the factoring provider takes responsibility to send periodical account statements to your debtors besides chasing the outstanding dues. There are different types of factoring predominantly recourse or non-course factoring. In the former you would assume the risk of your customer non-payment, while in the case of non-course factoring, the factoring provider would assume such risk, subject to certain criteria. New Zealand is predominantly Recourse Factoring focused.
What is Invoice Discounting?
Invoice discounting is somewhat similar to factoring, though unlike invoice factoring, in the case of invoice discounting, the provider will not take responsibility to administer your sales ledger. Instead you will be permitted to retain control over the administration of your sales ledger. Unlike factoring, when you use invoice discounting, your customer (debtor) will not know that you are using the service.