The Difference between Factoring and Invoice Discounting

Both factoring and invoice discounting are financial services that enable businesses to release the funds tied up in unpaid invoices. Both involve a third party company advancing money against outstanding debtor balances.

There are clear differences between factoring and invoice discounting:

• With factoring the third party company takes control of the sales ledger, chasing customers for settlement of invoices and managing the credit control of the business. They are also responsible for processing the payment of invoices, meaning that your customers are fully aware of your business contract with a factoring company.
  
• With invoice discounting your customers are unlikely to be aware of your relationship with a financing company. You maintain responsibility for the sales ledger, payment chasing and invoice processing.

The benefits of factoring and invoice discounting

Although there are key differences between factoring and invoice discounting, the benefits are the same:

• Releasing up to 90% of the value of outstanding invoices within 24 hours
• Funding can be secured without requiring other assets
• Cash is freed up to either lessen cash flow problems or grow the business 
• Supplier invoices paid promptly will increase your power to negotiate discounts
• Funding levels increase with your turnover
• Both services are competitively priced
• Factoring and invoice discounting providers often offer excellent business advice

The additional benefit of factoring is that it comes with a complete credit control and collection service, enabling you to focus time and resources on other areas of your business.

An additional advantage of invoice discounting is that responsibility for credit control and debt collection remains with you and your customers are not aware of any cash flow problems you maybe having.

Who uses factoring and invoice discounting?

The main areas of industry that utilise factoring and invoice discounting are:

• Manufacturing
• Recruitment
• Construction
• Printers
• Wholesalers
• Couriers

Factoring and invoice discounting can solve the problems associated with slow payment. 
Similarly, factoring and invoice discounting can prove beneficial for:

• Business startups – providing flexible finance to get new

ventures off the ground.

• Growing businesses – making your cash work harder for you.
• Struggling businesses – bridging the gap between invoicing and receiving payment.

What’s the best solution?

It depends on you, the nature of your business and your particular needs.

Business size and the management resources of your sales ledger will be key factors in determining whether factoring or an invoice discounting facility is most appropriate for your business.

Typically factoring works better for smaller businesses.  A main reason for this is the collection service and increased credit control that factoring provides.

For larger business where greater resources, whether human or information, exist, or if you want your company to deal with debt collection, invoice discounting is likely to be more appropriate.

Free Expert Advice

If factoring or invoice discounting are solutions you’re considering for your business, utilise Touch Financials independent expertise and find out more about how such options could benefit you and your business.

Help us to help you determine the best way forward.  We specialise with supporting small and medium businesses.

Why wait?  Take advantage of our free consultation today.

Only when we understand your entire needs will a recommendation be made.  We can even introduce you to factoring and invoice discounting providers offering the service you’re looking for.

Getting a competitive quote is simple

At Touch we have access to an exclusive panel of lenders in addition to being able to offer you preferential rates that you won’t find elsewhere.  Allow us to help – use our online quote form now to understand how much cash you could unlock immediately from unpaid customer invoices.

About the author: Touch Financial is an independent factoring broker, working with over 20 of the UK’s leading factoring companies.