In this product, the Factor will purchase the sales ledger and offer the Seller finance. It may also offer them credit assessment information and credit default protection - but it will not generally offer the collection and ledger management services that are normally associated with a factoring facility.
Invoice discounting is usually a non-disclosed product, so unlike most forms of factoring, the Buyers are not aware of the Factors involvement. Invoices therefore do not usually carry a Notice of Assignment.
Because the Seller is responsible for collection, usually all Buyer monies are directed to a Factor controlled account in which the Seller will deposit all buyer payments. The Factor will usually sweep out and allocate those funds within their own account each day.
For historical reasons, most invoice discounting facilities used to be managed on a bulk basis at Buyer account level instead of individual invoice level. However, with improved IT now generally available to facilitate the information exchange, whilst the Factor will still finance at an account level, invoice level data can in principle be transferred and recorded.
Because of the lower level of daily involvement and monitoring, the Factor will usually undertake routine month end reconciliations and regularly audit the Seller’s accounts and operations.
Because some legal regimes require that assignment notice is given for all Invoices to all Buyers, Invoice Discounting is not available in all markets. Equally, some jurisdictions may not allow nominated bank accounts which are in the name of the Seller but controlled or owned by the Factor.
From the Factor’s perspective, the risk profile for Invoice Discounting is different to that for a normal Factoring arrangement, as the level of control is lower. Accordingly, this product is often only offered to Sellers that are more established and financially more stable.
That said, Invoice Discounting dominates for example the UK market (one of the largest and longest established global open account receivables finance markets) and is established and growing to varying degrees in many other countries