Invoice Discounting and Factoring - Knowing the difference

Invoice Discounting and Factoring - Knowing the difference image

Many businesses take advantage of the huge benefits of invoice discounting and invoice factoring, but what’s the difference between the two? We take a look below.

Invoice Discounting

Invoice discounting is a process whereby a lender will advance your business up to 90% of the value of an outstanding invoice up front. Rather than handling your sales ledger and collecting and chasing payments on your behalf, you will remain responsible for communicating with your client in regards to the invoice.

Once your invoice is paid, you are returned the remaining percentage minus the lender’s fees. This is ideal for businesses who need access to cash tied up in an unpaid invoice, but do not wish for their clients to be made aware they are using an invoice financier. The lenders are very discreet, professional and efficient.

This is an ideal process for those who need outstanding cash available now yet still want to deal with your clients directly.

Invoice Factoring

This is a little more hands on from the lender’s point of view. Invoice factoring generally involves the financier handling your sales ledger, meaning they will collect and chance money owed from your client themselves.

This process means that your client/s will know that you are using an invoice finance service. The benefits of invoice factoring are that you will be taken out of the invoice collection process, giving you more time to focus on other areas of your business.

Additionally, many use factoring because the financiers can handle credit checks of your clients for you, which can make sure you’re always working with clients who will pay on time and in full.

It is worth noting that, if you take an Invoice factoring product, you are effectively handing your books over to a third party, which may have a slight impact on funding application elsewhere. If you have any questions on this, please get in touch with one of our team.

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