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Working capital management – Accounts receivable and payable

1.5 Invoice discounting and factoring

Invoice discounting and factoring are both ways of speeding up the receipt of funds
from accounts receivable and therefore of reducing the funding need but they both
come with costs attached.

Invoice discounting

Invoice discounting is a method of raising finance against the security of receivables
without using the receivables ledger administration services of a factor.

Advantages Disadvantages

Short term cash boost Expensive long term

Customer is unaware Extra administration costs

Factoring

Factoring is outsourcing of the credit control department to a third party

Advantages Disadvantages

Short term cash boost Expensive long term

Administration savings Customer stigma

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