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Manage Factoring and Invoice Discounting Agreements - Assignment Example

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The author examines the manage factoring and the invoice discounting agreements. The author states that invoice factoring and discounting are processes through which a company can get quick cash by assigning the debt to another party who could be a person, a commercial bank …
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Manage Factoring and Invoice Discounting Agreements
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Download file to see previous pages Invoice factoring and discounting are processes through which a company can get quick cash by assigning the debt to another party who could be a person, a commercial bank or other financial institutions.2 Depending on the nature of contract between the company and the financing agent the duty of collecting the debt form the client is either assigned to the agent or remains under the company.
The company will have to identify a reliable factor or invoice discounter to get cash against the invoice and then use the money to advance its operations.3 In order for the company to identify appropriate factoring or discounting agent, they should consider the agent whose term is favorable in terms of low fees, issue maximum deposit, low-interest charges and be able to pay the amount within the shortest time possible.4 The decision by the company as to whether to discount or factor the invoice will depend on the value of the invoice and the stability of the company.
If the company’s turnover is below $250,000 per annum and the company does not have in-house credit control systems the agents will prefer factoring the invoice.5 However, for companies with an annual turnover of more than $250,000 and adequate6 internal credit control systems discounting is essential because of the high cost involved. When factoring the invoice the agent usually charges high fees and interest rates.
Discounting of the invoice does not alter the arrangement between the trader and the debtor because the responsibility of collecting the debt rests with the trader, and the debtor is not aware of the arrangements.7 The company should discount its invoice in order to ensure its relationship with debtors remains unchanged. In fact, the clients may lose trust in the company in case the trader opts to assign the debt to a factoring agent. ...Download file to see next pagesRead More
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