Invoice Discounting Differs From Invoice Factoring

05/08/2019
Invoice Discounting Differs From Invoice Factoring

Working out the best financial solution for your business when it is suffering from cash flow problems is key to regaining control of the situation within your business. When there are so many different options to consider, the whole process can be particularly challenging.

Finding yourself in a situation where Cashflow has become an issue can be a difficult thing to come to terms with, but there are a number of options out there to help you. These solutions can ensure that you recover from the issue as quickly as possible and are able to keep your business operating through the trickier times.

What is flexible invoice discounting?

As is the case with factoring, invoice discounting is a method of borrowing short-term against the value of any outstanding invoices that you may have. It is used as a means of improving the overall working capital and Cashflow of your business.

Where invoice discounting is concerned, you remain in control and have responsibility for your sales ledger and for the chasing of any invoices that have not been paid, meaning that your loan remains completely confidential, and your customers will not be aware of the fact that you are using a financial provider to help with your Cashflow.

How does Flexible Invoice Discounting differ from traditional factoring?

Unlike with flexible invoice discounting, if you choose to use traditional factoring services, then your customers will be aware of the fact you are using a factoring process. This is because the factor takes on the responsibility for getting payment from your customers after providing you with the cash. Factoring firms also take on the responsibility for chasing late payments on your behalf.

Invoice discounting allows you to stay in control of your business and finances. You are left to manage your sales ledger and collect any and all payments owed yourself by your customers, while traditional Invoice factoring services carry out that service on your behalf of your business and removes the headache of having credit control staff and ensuring DSO targets are met.

Invoice discounting is also usually cheaper than Invoice factoring. The fee paid to the lender is less as there is less management involved. Furthermore, there is much less risk to the business owner than would be the case with factoring. This is because factoring firm may charge high fees and penalties if one of your clients doesn’t pay the invoice.

Invoice Factoring offers customers a much higher chance of acceptance because of the fact that it is much less risky for lenders it is the Invoice factoring company who manage the collection process and credit control. Invoice Factoring can sometimes work in your benefit in the sense that it may help you to negotiate better terms with suppliers.

On the other hand, it removes the relationship between the customer and your business and may impact on any professional relationships you have developed with your clients over the years, within the sales department. However, no sale is a good sale unless, the customer pays within credit terms.

Which is right for your business?

Which of the two is a better option for you depend entirely on what type of business you are and what circumstances you find yourself in? For a short term, cost effective solution to your cash flow needs, then Invoice Discounting provides control and management; you only have to use the service when you need it same as Selective Invoice Finance.

However, for a fee, a factoring firm could take the responsibility of chasing payments away from you and saving your business costs and credit control headaches.

Global Asset Finance Limited helping you regains control of your Cashflow and payment terms.

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Categories: Invoice Finance Services