Invoice Discounting

Question 1

What is an invoice

Answer 1

An invoice is a commercial document issued by a seller to a buyer relating to a sales transaction

Question 2

What are the advantages of invoices

Answer 2

They offer a streamlined way to organise a businesses finances.

It prompts for payment. This is because it is rare that the customer will pay without receiving an invoice.

Invoices are useful in keeping records in order to avoid legal trouble.

Question 3

What are the disadvantages of invoices

Answer 3

If the invoices are not drafted properly, this can lead to confusing and delayed payments.

Invoices produced late would also influence customers to be relaxed with payments.

Question 4

What is invoice discounting

Answer 4

This is the access given to your accounts receivable ledger. Instead of waiting for customers to pay invoices, a loan is taken out from a company. This is usually 95% of the value of the invoices. One payment is recieved from customers, the loan is paid back

Question 5

What are the advantages of invoice discounting

Answer 5

Improves cash flow as the money from invoice discounting is paid quickly in comparison to waiting for customers omers to pay.

Invoice discounting is usually cheaper than loans from a bank.

With invoice discounting, there is a predictable flow of income.

Question 6

What are the disadvantages of invoice discounting

Answer 6

Due to having to provide companies with a commission, it decreases profits.

Invoice discounting is usually quite costly for a business.

The stems of invoice financing are quite volatile.

Question 7

Is invoice discounting a short term or long term source of finance

Answer 7

Short term source of finance