Invoice Discounting is fast becoming the most popular option for trade finance particularly in relation to domestic and UK sales. The concept is based on a finance line that flexes in tandem with your sales growth. As your sales increase to approved customers the amount of finance available grows accordingly. When the customer presents sales summaries of approved invoices the finance company will advance about 70 of the invoice values.
An assignment of the book debts provides the main security. Export credit insurance is normally a requirement for export sales and some of the discounters manage their own credit insurance policies. Finance is with recourse and personal guarantees are normally required.
With the pick up in the economic climate I believe many companies will experience significant growth in their sales. Invoice discounting releases that extra bit of trade finance which is so critical at the growth stage.
Finance is more expensive than the traditional overdraft facility and there are also management fees charged by the discounter to cover the administration costs. For growing companies with good profit margins invoice discounting can play a major part in providing a trade finance solution
This material has been provided courtesy
of Obrico Ltd Global Trade & Finance.
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