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The Difference Between Factoring and Invoice Discounting

Factoring and Invoice Discounting are both financial services that can release the funds tied up in your unpaid invoices, involving a provider who agrees to advance money against outstanding debtor balances.

The essential difference between Factoring and Invoice Discounting lies in who takes control of the sales ledger and responsibility for collecting payment:

  • With Factoring, the provider takes the role  of  managing the sales ledger, credit control and chasing customers for settlement of their invoices.
  • With Invoice Discounting, your business retains control of its own sales ledger and chases payment in the usual way.
  • Another difference between Factoring and Invoice Discounting is in the area of confidentiality:
  • With Factoring, the customer settles their invoice directly with the Factoring company; so customers are more likely to be aware of your Factoring arrangement.
  • With Invoice Discounting, your customers still pay you directly; there is no need for them to know that a third party is involved.

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The benefits of Factoring and Invoice Discounting

  • Releasing up to 90% of the value of your outstanding invoices within 24 hours
  • Funding can be secured without requiring other assets
  • Cash is freed up to overcome cashflow problems or grow the business
  • The level of funding available increases with your turnover
  • Paying supplier invoices promptly increases your power to negotiate discounts
  • Factoring and Invoice Discounting 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 your resources on other areas of your business.

In regards to Invoice Discounting, you attain the advantage of managing your own credit control and debt collection. Hence, your customers are never aware that a third party is involved or that your business might be having cashflow problems.

Who uses Factoring and Invoice Discounting?

Factoring and Invoice Discounting are particularly suited to businesses in areas such as:

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

But in any business that provides services or goods to other businesses and gives customers credit terms of 30-90 days, Factoring and Invoice Discounting can solve the problems associated with slow payment.

Likewise, Factoring and Invoice Discounting are useful options for:

  • Business startups — flexible start-up finance to get your new company off the ground.
  • Growing businesses — putting your cash back to work for your business as soon as you’ve earned it.
  • Struggling businesses — bridging the gap between invoicing your customers and getting paid.

Which is right for you?

Whether you choose a Factoring or an Invoice Discounting facility will largely depend on the size of your business and your sales ledger management resources.

If your business is relatively small and your human resources limited, the credit control and collection service that comes with Factoring is likely to suit you better.

If your business is larger, and you have the human and information resources to efficiently manage your own sales ledger and debt collection — or if you feel strongly that you want your own company to deal with debt collection — Invoice Discounting is likely to be your preferred option.

Get expert advice — for free

If you are considering Factoring and Invoice Discounting, why not speak to an impartial expert at Touch Financial about how this form of finance could benefit your business?

Our free consultation service helps small and medium business owners decide on the best way forward.

We’ll take the time to understand your needs before making any recommendations. And if you wish, we can put you in touch with Factoring and Invoice Discounting providers that offer the right service for your specific requirements.

Get a competitive quote right now

At Touch we have access to a panel of more than 20 quality lenders as well as some exclusive rates that you won’t find anywhere else. Let us do the legwork for you. Use our online quote form now to find out how much cash you could release from your unpaid customer invoices.

It often only takes a 10 minute call before we can assess the best fit lender for your needs and expectations, free of charge.

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"Very polite and a professional team of financial advisers who seem to know their business, work well within their industry and get a result."-Invoice Finance Introduction

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