Other trade finance in Australia
Factoring/discounting are business financing tools whereby the factor/discounter purchases trade debts (invoices raised not yet paid) from a business, and in exchange pays cash (or prepays a certain percentage) against those debts.
The provision of funding depends on the level and quality of debts rather than the level of security held by the factor/discounter. The factor/discounter monitors the level and quality of debts, and funding availability fluctuates in line with the level of “approved” debts, not according to a fixed, pre agreed limit as is the case with overdraft and commercial bill funding.
Factoring/discounting arrangements involve the assignment to the factor/discounter of debts owed by debtors to the client. This differs to an arrangement to provide a loan to fund debtors. Under a lending arrangement, the lender is granted security over the debtors of the business via an equitable charge over the business, or specifically the debtors.