Accounting for your invoice financing

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Written by Michael Foote , founder of Quote Goat, with over 13 years experience working in the finance, insurance and currency sectors.

Put simply, invoice financing is a form of short-term money lending where outstanding payments from clients is used as collateral against the loan.

They fall into the two categories:

Invoice Factoring – Where a lender takes over your sales leger and takes on the responsibility of collecting the loan repayments directly from your customers.

Invoice Discounting – The other side of invoice financing is in discounting, where you will still be responsible for collecting your own debts and managing your own sales leger in order to pay off the loan repayments.

How to process your invoice financing:

  1. Once you have established capital from a lender, you will have to send the details of each invoice you receive to your financial provider via an online account that they will help you set up in the initial proceedings.
  2. A percentage of each invoice will be made available to you up front which your company can use immediately.
  3. If you are using invoice factoring, your customers will know that you are lending against their unpaid invoices. They will pay directly into a trust account when they come to pay their invoices.
  4. As funds reach your lender, they will make the remaining unfunded amount available via your online account minus fees and discount charges.
  5. From here you will need to balance your online account with your own sales leger. The provider of your loan will make sure that your sales leger and online account with hem match up by performing reconciliations once a month.

Always ensure that your accounts are balanced between your online account and your own sales legers to avoid any discrepancies, ensuring a healthy relationship between your company, your clients and your lender going into the future.

You can find the right lender for you when you compare invoice finance with Quote Goat.

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