The Difference Between Invoice Financing and Factoring

To the uninformed, the myriad of business finance services on offer all seem to be the same. This is actually understandable as financial institutions do their best to confuse people and make little attempt to differentiate between products. This probably explains why a majority of businesses believe invoice factoring and financing are one and the same. Below, we will help you spot the difference between the two and hopefully help you see if one or the other is suited to your business needs.

With invoice factoring, you are giving control of your invoices to the provider who takes charge of credit control and your sales ledger. You are also allowing the provider to use their own methods to get the outstanding payment from your clients. This may not be too popular with some clients who feel harassed. In actual fact, many companies avoid using factoring for this very reason.

It is extremely important to note that this is a world away from invoice discounting which allows you to retain credit control. Discounting means you can use your own methods of extracting cash owed by clients. Many companies prefer this method because they can benefit from the invoice financing provider’s skills without their existing clients’ knowledge. Many clients become uncomfortable with the thought of third party involvement.

And this confidentiality is a tremendous selling point. Although you are entitled to the payment owed by clients, it is not uncommon for certain clients to cease trading with a company that have used invoice financing. This is down to lack of information as much as anything. All an invoice factoring company will do is seek payment of the invoice within the agreed timeframe. They will not harass clients or otherwise break the law.

Before you choose between invoice financing and factoring, consider what each choice means for your company. If you fear that some clients will walk away, avoid using factoring and benefit from discounting instead. However, if you want an expert organisation to take complete control of your invoices, invoice factoring is the best choice. Don’t be a hostage to generous credit terms, get at least 80% of your invoice’s value upfront with either invoice financing or factoring.

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.


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