Payday Loans and Fast Cash Guide | The Many Names of Invoice Factoring

The Many Names of Invoice Factoring

After our discussion on what is invoice factoring, some people have had gripes about the true definition of factoring. This is a difficult subject to handle because different people mean different things when they say “factoring”. This article will discuss three different versions of the word (factoring, discounting, or forfeiting).

Another thing that makes nailing down exactly what a person means by factoring is that some people refer to it as accounts receivable factoring while others call it factoring invoices. Accounts receivable, for our purposes, are the exactly equivalent of invoices.

The most common use of the word refers to selling an invoice to a third party known as a factor. However it should be noted that some people call this invoice discounting or forfeiting. These differences have really arisen because of the different industries that use this type of account receivable financing. For example the international  trade industry is more likely to use the word forfaiting.

If we want to be completely accurate (according to Wikipedia) forfeiting refers to a single sale’s transaction of an invoice to a third party factor. There are some people who also refer to this as single invoice factoring. Single meaning only one transaction.

So if forfeiting refers to a single transaction, then factoring refers to a company who works with a factor on all transactions. In short when a company has entered into a contract with a Factor to sell all of its receivables to said Factor then this is known as factoring. These hard and fast definitions don’t really leave room for those who work on a consistent basis with a Factor (more than one transaction) but do not sell all of their receivables to a Factor. In practice this happens quite a bit and is usually referred to as factoring. In fact, in practice hardly anyone uses the term forfeiting.

Now that we’ve finished discussing factoring and forfeiting, let’s move onto what is known as invoice discounting. With discounting you are not actually selling your accounts receivable to a Factor. Instead you are using your receivables as collateral to take out a loan or line of credit. The line of credit is usually around 70-80 percent of the value of all your receivables, but of course this will vary based on the risk of collection. As the amount of receivables you have outstanding adjusts so will the amount of money you can borrow.

In summary forfeiting refers to a single sale of an invoice to a third party. Factoring refers to selling all of your invoices to a Factor on a consistent basis. Discounting refers to using your receivables as collateral for a loan. However, factoring is often used in practice to refer to all three of these practices and everything in-between.

PS – I know this is different than our regular payday cash advance topics, but I felt it fits well with the future goals of this site. -Lydia

Related posts:

  1. How Senator Jim Bunning Could Affect Loans for the Unemployed
  2. How Large Of A Payday Loan Can You Get?
  3. Loans For Single Mothers Can Help In Times Of Crisis
  4. Get Money Fast and Get your Debt in Control
  5. How Much Do Fast Cash Loans Cost?
  6. Important Factors to Remember When Looking for Free Debit Consolidation
  7. The Advantages Of Getting SMS Loans
  8. Second Mortgages
  9. Researching Money Making Ideas
  10. What Goes Into Your Credit Score?

Comments

Leave a Reply




Page optimized by WP Minify WordPress Plugin