![]() ![]() In both cases, the buyer repays the financed amount to the lender. However, invoice discounting makes the seller liable for payment collection unless the invoice is sold to the lender. In factoring, the seller transfers the invoice and debt collection duties to the intermediary instead, invoice discounting gives the seller an option. Invoice factoring and discounting vary in the flexibility and confidentiality offered to the borrower, but the main difference is the invoice and sales ledger ownership. Seller has control on credit and business finances Lender is disclosed to buyer as ownership transfers Remains with seller unless sold to financierĬhoice to disclose about the financier involvement to debtor ![]() Invoice Factoring vs Discounting Invoice Discounting This graph represents a non-recourse factoring process which is the case when the invoice ownership is transferred to the factoring company. The factoring company transfers the remaining balance minus the factoring fees to the seller.The buyer pays the outstanding invoice to the factoring company on the due date.Becomes responsible for payment collection.Become the invoice owner thus, the invoice is no longer an asset (accounts receivable) on the seller’s balance sheet.Advances a certain percentage of the invoice, usually 80%.The financier calculates the credit limit (based on the risk profile of the counterparts),.The seller submits the account receivables (invoice) to the factoring company to determine eligibility.There must be a commercial transaction between the buyer and the seller as a prerequisite. Invoice factoring involves three parties – the business in need of financing (seller), the buyer purchasing the goods (debtor), and the factoring company lending money to the business (the intermediary). However, the two facilities differ when it comes to payment collection and invoice ownership. The process of invoice factoring is very similar to invoice financing process.
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