by scowan
11. August 2010 00:43
Following on from our series on avoiding bad debt we thought we should expand on why you should talk to both your bank and HM Revenue and Custom. Later this week we'll post about HM Revenue and Customs.
Are you able to get access to increased borrowing or take advantage of invoice discounting or Factoring Services? Remember to tell HM Revenue & Customs if your customer folds as you should be able to reclaim VAT and may even be able to arrange deferral of VAT and PAYE.
Debt Factoring and Invoice Discounting
Debt factoring involves selling your invoices to a third party. In return they will process the invoices and allow you to draw loans against the money owed to your business. Essentially, these companies provide a debt collection and ledger management service.
It is commonly used by businesses to improve cashflow but can also be used to reduce administration overheads. Businesses that supply this service are called factors or debt factoring companies.
Invoice discounting is an alternative way of drawing money against your invoices. Here the business borrows a percentage of the value of its sales ledger from a finance company, effectively using the unpaid sales invoices as collateral for the borrowing. However, with this your business retains control over the administration of your sales ledger. As well as providing finance, it offers valuable support services and credit insurance.