Single invoice discounting or factoring is the application of a fixed rate to each invoice and setting the amount of the charge to be set aside for the client on the invoice. The single invoice discounting arrangement is a common solution for all types of invoice financing because it has the following advantages:
Single invoice factoring can be used to repay smaller loans, offset prepayment charges and for the repayment of other existing loans. In the first instance the loan should be a larger one and the discounting will reduce the total cost of the loan and the client may then pay the balance to the lender.
When multiple accounts are involved in factoring the lender can use the single invoice discounting approach to reduce the overall cost of the loan. This works especially well if the accounts are segregated according to types of invoice. Single invoice discounting can reduce the cost of a larger loan by 10%, but when the accounts are not segregated by type of invoice they may actually cost the borrower more than if they were considered separately.
Single invoice discounting can be used to repay business insurance, pension schemes and employee stock options. If the account is secured, the discount rate may be raised above the fixed rate to offset any charges that might have been incurred.
Single invoice factoring can be used to avoid certain charges and incur lower costs in some instances where multiple accounts are involved. If accounts are segregated the discount rates may be lowered in the event of increased account activity.
Single invoice factoring can be used to transfer loans into accounts and repay expenses associated with many account types. It can also be used to transfer accounts to accounts when the account holder decides to change the type of loan.
When multiple accounts are involved in factoring the advantage of flexible pricing is possible. The discount rate can be raised in order to offset the cost of an individual account.
When multiple accounts are involved in factoring the process has to be carefully managed to ensure that each account is treated fairly. The effect of this may be a situation where the borrower may have a loan with a variable interest rate and accounts with a fixed interest rate.
The discount rates can be set to suit the client’s needs depending on the balance between the costs and the benefits. As the client makes payments, the discount rate can be adjusted to make sure that all the clients receive a fair deal.
With single invoice discounting the client does not need to rely on a range of different documents. Each account is considered separately and so the management of documentation is simplified. For more info check out Invoice Factoring NZ.