invoice finance

What’s the difference between invoice discounting & invoice factoring?

The difference between Invoice Factoring and Invoice Discounting largely boils down to which party collects the business’s unpaid invoices. In invoice discounting, a business finances their sales ledger but retains full control of their own credit control. Invoice factoring on the other hand, the factoring company purchases the unpaid invoices and takes over the collections. Both facilities advance the customer around 80-90% of their sales ledger upfront. The remaining sum is forwarded once the debtor has paid the invoice (minus fees).

Invoice Discounting Process

A business raises cash on their invoices by obtaining a loan whereby the financier loans up to 90% of an outstanding invoice. The business, however, is still responsible for chasing up the invoices from its debtors. Once payment is collected, the business then begins paying the loan back to the finance provider.

In this instance, it is the business provider that sets up the facility with the finance provider and pays the fees for the facility.

The business’s debtors are not made aware of the arrangement and pay their invoice as normal. This facility suits large enterprises that have an in-house credit control team.

Invoice Factoring Process

In invoice factoring, a business sells its invoices to a factoring company. The factoring company pays the business a percentage (usually up to 90%) of the total outstanding amount upfront. The factoring company then takes responsibility of collecting the full amount. Once the invoice amount is collected in full, they forward the remaining 10% to the business, minus the agreed fees.

The factoring company deals directly with the debtors’ invoices. This factoring arrangement can either be disclosed with the invoice debtor or completely confidential.

This facility is often provided to SMEs that are looking to improve their cashflow and free up time to accelerate growth.

Invoice Factoring for SMEs

To conclude, if your business is an SME then Invoice Factoring is likely the best option for you. This form of financing will provide you with rapid access to the cashflow tied up in unpaid invoices. With the factoring company also responsible for the credit control, this facility provides you with the cashflow and the time to focus on the growth of your business.

Moreover, it is much quicker to arrange than a bank loan and is often seen as a less risky form of finance.

So, if you believe an Invoice Factoring facility can help your business then give WeDo a buzz on 0330 900 5000.