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Invoice Discounting or Invoice Factoring: which one is best for business?

16 Apr 2021

Finding a solution to this, that protects your business and maintains your client relationships, is key for many businesses. A solution also gives you the opportunity to free up cash for your business or grow financially.
Invoice Discounting and Invoice Factoring could be a great solution for you. Both allow you to fill the gap of up to 120 days between raising an invoice and being paid by borrowing against the invoices.

But which is right for you and your business?

Depending on the size of your business and the type of customers you have will determine which is the most suitable for your business. 

Read on to find out more…

What is Invoice Discounting?

Invoice Discounting is a form of short-term borrowing against your outstanding invoices. It is usually used to help improve your cash flow position. 

With Invoice Discounting, you maintain responsibility for your sales ledger, payment chasing, and invoice processing. As a result, your customers are unlikely to be aware of your relationship with the lender allowing you to maintain the relationship with the customer, as well as protecting yourself against possible late payments.

Key things to remember

  • Invoice Discounting can be arranged confidentially so your customers won’t be aware you’re borrowing against their invoices.
  • It remains your responsibility to manage your own credit control and debt collection for customer accounts, helping you to build and maintain closer relationships with your customers.

What is Invoice Factoring?

Invoice Factoring is also a form of short-term borrowing against your outstanding invoices. The main difference here is that you will receive your payment but the lender takes on the responsibility for getting payment from those customers, managing the credit control of the business, and processing invoice payments. 

This means that your customers will be aware of your relationship with the lender, but this can help when dealing with larger or more difficult customers and it does take the pressure off your business with regards to chasing payments. 

Key things to remember

  • The finance company will look after your sales ledger, manage the credit control process, and chase payments, freeing up your time to manage the business.
  • Excellent credit checking processes mean you are more likely to trade with customers that pay on time.

“Working with a multitude of funders allows us to provide a number of flexible solutions to support the day-to-day running of your business. If you would like to discuss anything, please get in touch”
- David Catling – Executive Director

If you feel that you could benefit from Invoice Discounting or Invoice Financing, then get in touch and we can discuss which would be the best option for you and your business.
0114 442 8008