In today’s trading world, financial institutions have made countless inventions in order to continue their business, and one of these services is commercial invoice factoring. The goal of this business is to help buyers increase their working capital, and for the seller, it is to improve the liquidity of funds. However, what is the commercial invoice factoring? How does it work?
COMMERCIAL INVOICE FACTORING
Commercial invoice factoring, also known as commercial invoice financing, is a commercial service provided by financial institutions for small and medium-sized enterprises that do not need commercial cash. The industry is estimated to have a value of three trillion dollars per year. In the commercial invoice factoring, the company will sell the commercial invoices that have not been paid to the financial institutions for the emergency use of funds, in exchange for cash. After the debtor has paid the full commercial invoice, the discounted portion can be redeemed.
The advantages of commercial invoice factoring cannot be ignored. By financing the invoices before the real debts, it is possible to consolidate the relationship between the companies, achieve financial liquidity at important moments, and allow the company to continue, slowing currency fluctuations.
However, as with the challenges faced by both the supply chain and the sourcing industry, commercial invoice factoring also requires solutions that are considered in the future.
THE CHALLENGE OF COMMERCIAL INVOICE FACTORING
CUSTOMER CREDIT COMPLEXITY
Companies that perform factoring must check the credit of all customers. Because of the paperwork between them, this process is time-consuming and may not produce the positive results that the company expects to see. At the same time, your company can only sit still while running this program through a third party. If the factoring company rejects most of its customers, then these urgently-demanding companies are no exception.
COMMERCIAL INVOICE EXCEEDS CREDIT LIMIT
Every business has a credit score that financial lenders don’t want to exceed. If the commercial invoice exceeds this credit limit, the company will be isolated and facing a financial crisis.
CUSTOMER REFUSED TO COOPERATE
If those commercial invoices are transferred to a financial institution for customer care, the financial institution will not accept these commercial invoices. Some customers are also more likely to accept direct negotiations with suppliers who are in crisis.
Depending on the operating guidelines of the performing factoring company, the order must be completed to qualify for commercial invoice factoring.
UNVERIFIABLE COMMERCIAL INVOICE
Commercial invoice verification is the first step in all invoices for applying for a factoring business. This step must be taken to protect the customer, but some companies may not be able to pass this verification process. In such cases, the factoring company may not accept requests from these companies.
DUPLICATE PROJECTS AND HUMAN ERROR
Dealing with duplicate applications and commercial invoices is a challenge in itself. There are also problems with human error. As with the possibility of having the same item and invoice, there may be errors in the invoice due to human error.
BLOCKCHAIN TECHNOLOGY PROVIDES THIS LOST LINK
The most frightening problem with commercial invoices is a fraud. If all the work with the invoice factoring is decentralized through decentralized ledger technology, all the details related to a transaction or invoice are spread across all nodes, and the possibility of trying to fool the system or even falsify a transaction is negligible. .
The problems mentioned above all point to solutions based on blockchain technology. To get rid of these difficulties, you must use the regional fast chain monitoring system to open commercial invoices and invoice factoring.
For the original text, please see Planport’s article published in Medium on June 21, 2018: