Invoice discounting vs invoice factoring

Invoice discounting and factoring are very similar in the fact they both provide the ability to release up to 100% of the cash tied up in unpaid invoices.

 

The best one for you and your circumstances generally depends on how good your business is at credit collection and the level of confidentiality needed. Larger, well-established businesses with in house  finance teams often go for invoice discounting.

Meanwhile, those who might need help with collections tend to lean towards factoring. It’s like picking the tool that fits your business the best!

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Invoice finance – what is it?

Invoice financing is a powerful funding solution for businesses of all sizes, from small enterprises to large international companies, invoice finance is a popular option. Invoices can take anywhere from 14 to 120 days to be settled, and waiting for payments can put a strain on your finances. That’s where invoice financing steps in. Instead of waiting weeks for customer payments, you can quickly get up to 100% of the money you’re owed in just 24-48hrs.

What’s more, if you don’t have valuable assets for traditional funding, invoice financing is an excellent option. Your unpaid invoices serve as the only collateral needed. The speed and flexibility of this solution ensure you have access to the necessary funds exactly when you need them.

Among the different types of invoice financing, the two most commonly used are invoice factoring and invoice discounting. Although both provide quick access to much-needed cash, it’s important to understand their distinct features when choosing the right option for you.

So, factoring or discounting, which is right for you? Let’s take a quick look at each option.

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What are the differences between invoice factoring and invoice discounting?

The most notable difference between invoice factoring and invoice discounting is who is in control of the sales ledger, who takes responsibility for collecting payments, and the level of confidentiality involved, but there are other notable differences to consider.

Let’s compare the two.

 
Collections
Payments
Confidentiality
Cost
Customer relationships
Requirements
Invoice Factoring
The provider takes the responsibility of collecting your outstanding customer payments.
Your customers pay into a trust account that bears the provider’s name.
Your customers will be aware that you are using a finance facility.
Due to the larger service offered there are higher cost associated with invoice factoring.
You will lose some control over your customer relationships as the finance provider will be in control of collections.
Most providers will require a minimum net turnover of £50,000 and 12 months of trading.
Invoice Discounting
You remain responsible for collecting outstanding customer payments.
Your customers pay into a trust account that bears your name.
Your customers will be unaware you are using a finance facility.
As the responsibility of credit control remains with you the costs associated with invoice discounting are lower.
You will remain in full control of your customer relationships and they will be unaware of your financing choices.
Most providers will require a minimum net turnover of £250,000 and 12 months of trading.

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As you can see both options offer a wide range of benefits to your business. If you would like speak to one of expert advisors about which option best suits your current circumstances then fill out the form below and we will give you a call back.

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