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Factoring or Invoice Discounting?

Do you know your factoring from your invoice discounting? If you’re looking for the best finance option for your business, it could pay to brush up on your knowledge of invoice finance and alternative funding. These are two different financing routes which can help to ease late payment issues and boost your cash flow – but what’s the difference between the two?

The main difference between invoice discounting and factoring is in who is collecting payment from customers – your company or the factoring lender. With factoring, the third party lender takes control of the sales ledger, chasing customers for payment on your behalf. This means that factoring includes a whole credit control system for your business. It also means that customers are aware that you’re using an invoice finance lender, however all contact is of course conducted professionally in order to maintain good customer relations.

This means that factoring has added value for many small businesses. Without a clearly defined infrastructure or dedicated finance department, chasing invoices can often slip down the priority list and get lost in the day to day running of the business. Handing over this responsibility leaves you with more time to get on with job number one: growing your business.

Invoice discounting, on the other hand, means you stay in control of payment collection from customers. They will be unaware that you’re using a factoring lender as all communication will be just from your business. You’ll be in control of your sales ledger, payment chasing and invoice processing.

As such, invoice discounting is more suited to larger businesses with more stable infrastructure and a proper invoicing system. This method of invoice finance often needs a certain level of turnover for your business to be eligible, and this goes hand in hand with a more structured invoicing procedure.

Invoice finance is a fast, flexible and accessible way to boost your business cash flow and unlock funding – just make sure you’ve got all your facts straight!


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