Why use Invoice Discounting?

Piggy bank

An introduction to Smash Repairer Factoring

Factoring can be a useful tool for unlocking cash to keep your business afloat in tough times or during growth periods.

But the financial language surrounding factoring can be complicated . In this article, we will discuss this language in detail and make it simple to understand.

 What is Factoring

It might seem a bit weird but your Accounts Receivable (or Debtors) are an Asset you can sell just like any other asset you

So factoring your debts is just another way of saying you are selling them, no more or less.  It is sometimes also called Invoice Discounting.

In the smash repair industry, when jobs are completed an invoice is of course sent out to the debtor (often an  insurer) to pay.  Sadly , because of the cost and complexity of repairs, there may be delays before they check and pay it.  When that happens and these invoices pile up, it can be a headache for a business which desperately needs the cash for ongoing expenses and keep customers happy.  

Fortunately, these unpaid invoices are an asset which can be sold (or factored) for immediate cash into your bank just like any other asset you own.  

What’s so good about Factoring

Factoring’s sole advantage is that it can get you cash fast.

The other great thing about Smash Repairer Factoring is you can sell just one invoice or many.  It depends on what cash you want to raise quickly.

 If you need cash fast and have completed repairs then once you have invoiced them you have a choice.

You can sell the invoice to a Factor INSTEAD OF SENDING IT TO THE DEBTOR and get your cash immediately OR you can send it to the Debtor (often an Insurer) and wait for them to pay you.

If you need a lot of money or a small amount but need it really fast no other source of funding can get it to you as fast as factoring. 

Bank loans are cheaper but for short term funding needs they are far too slow to set up.  They may
even be more expensive for smaller amounts as they tend to have high fixed establishment costs whereas factoring has low or none.

Also banks require lots of information and security and documentation is complex.  Factoring skips all that.

The Factor

In a factoring transaction, the business that buys your sales ledger invoices is called the Factor.

Once it buys the debt (that is it buys your invoice) it takes on the responsibility of chasing the debtor for payment of the invoice.  That means you don’t have to.  That can be a huge time saving.

Factored invoices and Retentions.

Smash repairer factoring in Australia is unique in that Repairers receive 100% of the value of the invoices they sell (less the factoring fee).  For most other types of factoring the Factor holds back a % of the value of the invoice being sold to cover unexpected short payments (credit notes, defaults etc).  This is called the “retention” but as mentioned its not something Repairers have to worry about.  Their retention is typically NIL.   They get all the value of the invoice they sell (less the factoring fee).

Recourse or Non-recourse factoring

Smash Repairer factoring is also “fully recourse” back to the Repairer.  This means if a sold or factored invoice is short paid or not paid at all the Repairer has to reimburse the Factor for the underpayment. 

This can be done by paying them cash or very commonly the Factor will agree to take the shortfall out of the money they would otherwise pay the Repairer for future factored invoices.

Invoice Discounting versus Factoring

Increasing both are used to describe the same thing. Some people say invoice discounting is where debts are sold invoice by invoice whereas factoring is where every debt is sold.  Increasingly people don’t make that distinction.  The two term are used inter-changeably.

Running a Better Business Because of Factoring

Factoring can help your business, by giving you peace of mind about your cashflow and free your mind up to focus on what you need to rather than dealing with all the hassles that accumulating unpaid creditors invoices can cause.  You are better able to carry on the day to day operations of your business and focus on the activities where you are an expert.

Getting your invoices for completed repairs immediately converted to cash, so you have constant cash flow means you are able to reinvest money in parts, labour and expansion as needed rather than waiting on your debtors to pay you.

Talk to Working Capital Finance Today About Factoring or Invoice Discounting For Your Auto Repair Business


Working Capital Finance are industry leading providers of factoring services and invoice discounting for the auto repair industry. If you are in the industry and think our services might be of use to you, please get in touch with us  by calling 02 9132 4445 or contacting us online.

Please note: The content of this article should be considered informational and not construed or considered to be actual financial advice.