Invoice factoring is a form of finance provided by either banks or other financiers.
Invoice factoring is part of a wider invoice finance industry and involves a business assigning (or selling) invoices to the financier or bank in exchange for prepayments against those invoices of anything up to 90% of their value. A company can therefore raise an invoice, notify that to the financier, the financier will then pay the company up to 90% of the value of that invoice immediately which the company can then use for the purposes of running the business and growing the business.
Invoice factoring differs from other types of invoice finance such as invoice discounting as it is a form of invoice finance which is known (or disclosed) to the end customer.
The end customer is aware of the assignment of the invoice to the financier and notice of assignment is generally given at the outset of the trading relationship between the bank’s client and the bank at which stage a general notice of assignment is sent out to all customers of that company. The notice of assignment is also contained on the invoices sent by the financier’s client to its customer base as and when they are raised.
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