Invoice discounting – factoring

Invoice discounting is receiving financing on the basis on uncollected invoicing it’s usually only available to larger companies and on pre-approved invoices.

Factoring involves another company managing the debtor ledger. There’s an administrative element and the other company is also involved in making the credit granting decision. It also involves fronting money to the company based on the debtors amounts. It can be recourse or non-recourse.

Both are used to more effectively manage working capital and are a way of financing it. There costs should be compared to the cost of other sources of financing this capital although other decision points should also be used/referred to.