5 Questions
What is the main purpose of invoice discounting?
To improve the client’s cash flow
What percentage of the invoice value can be advanced through invoice discounting?
Up to 75%
How does invoice discounting differ from factoring?
It does not involve administration of the client’s sales ledger
Under invoice discounting, who collects the debts from the client's customers?
The client
When does a client typically seek invoice discounting?
When experiencing temporary cash shortage
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.
Test your knowledge of invoice discounting with this quiz. Explore the concept of invoice discounting, its relation to factoring, and the services provided by invoice discounters. See how much you know about the process of purchasing selected invoices at a discount and the implications for a client's sales ledger administration.
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