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Questions and Answers
What is the main purpose of invoice discounting?
What is the main purpose of invoice discounting?
- To offer long-term financing for the client
- To take over the administration of the client’s sales ledger
- To provide credit protection for the client
- To improve the client’s cash flow (correct)
What percentage of the invoice value can be advanced through invoice discounting?
What percentage of the invoice value can be advanced through invoice discounting?
- Up to 50%
- Up to 75% (correct)
- Up to 90%
- Up to 100%
How does invoice discounting differ from factoring?
How does invoice discounting differ from factoring?
- It offers credit protection without cash advance
- It is only suitable for small companies
- It does not involve administration of the client’s sales ledger (correct)
- It provides 100% advance on invoice value
Under invoice discounting, who collects the debts from the client's customers?
Under invoice discounting, who collects the debts from the client's customers?
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When does a client typically seek invoice discounting?
When does a client typically seek invoice discounting?
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Study Notes
Invoice Discounting
- The main purpose of invoice discounting is to provide immediate access to cash tied up in outstanding invoices, allowing a business to improve its cash flow and meet its financial obligations.
Key Features
- Up to 90% of the invoice value can be advanced through invoice discounting, providing a significant influx of cash to the business.
Comparison with Factoring
- Invoice discounting differs from factoring in that the client retains control of the sales ledger and collects payments from customers, whereas in factoring, the factor takes control of the sales ledger and collects payments.
Debt Collection
- Under invoice discounting, the client is responsible for collecting debts from their customers, maintaining control over the relationship with their customers.
When to Seek Invoice Discounting
- A client typically seeks invoice discounting when they need to address cash flow gaps, overcome funding constraints, or invest in business growth opportunities, often when they have a large amount of outstanding invoices.
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