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Factoring vs. Invoice Discounting

Factoring and invoice discounting are both important financial services for many small businesses. they can help to release capital tied up in unpaid invoices, which can often lead to cash flow problems caused by late payment issues. However, how do these two invoice finance solutions differ from one another? There are some important differences that need to be considered by any company looking to these services for funding.

There are a couple of clear differences between the two services:

With factoring, the factoring lender takes control of the sales ledger and will chase payment on behalf of the original company. Customers will be aware that your business is using a factoring service, as it will be the lender who processes the payment of invoices and deals with customers directly.

Factoring takes the weight of chasing and processing payments off the shoulders of your business, letting you focus resources on other areas.

Invoice discounting, on the other hand, means that it will be your company that continues to chase invoices. Customers are going to be unlikely that you’ve used a factoring lender, as they will only be dealing with you as normal as you chase payment and clear the invoices. Your business will have full control of the sales ledger and processing payments.

Invoice discounting lets you retain control of debt collection, and does not let customers know that you are using a factoring lender. This means they will be unaware of any issues you are having, such as cash flow, which is often a driving factor behind using this type of funding.

When it comes to small business funding, there are a lot of options, and invoice finance such as these two types is only one. However, invoice discounting and factoring are both flexible and secure ways of getting access to funds, without having to rely on your bank manager.

Select Factoring have a range of solutions, suitable for a whole range of small business needs.

 

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