What Are The Differences Between Invoice Factoring And Invoice Discounting?
There are many invoice finance solutions available and they vary from full invoice factoring to Confidential Invoice Discounting. Recently more lenders offer selective products, which allow you to pick and choose which invoices you want to raise capital against and which you are happy to wait for payment on.
Full invoice Factoring is designed for companies that are looking for support in managing their debtor book. When you take on an invoice factoring facility all debts are chased by the lenders and managed internally by their credit control team. This is a huge benefit to many small companies as it allows them freedom to focus on running their own business and avoids larger companies’ savvy financial controllers from manipulating or delaying payment terms.
Confidential Invoice Discounting works on a very similar basis to the above but allows you to retain control of your debtor book. You chase your own debts and manage your relationship, allowing for circumstances you are more likely to understand in your customers business.
This allows you to manage the relationship and even look for further opportunities due to the increased time you spend communicating with your client. This can be especially true when the Managing Director is heavily involved with chasing payments.
How Does Invoice Finance Work?
- You send your invoice as normal to your customer for your goods or services.
- You then send a copy to your lender or copy them in by email.
- At this point, your lender would make payment for the agreed percentage of the invoice, up to 95% of the amount due.
- The invoice is chased as normal (either by yourself or your lender) and upon payment, the remaining balance is released to you less the agreed fees.
Comparing Invoice Finance Providers
There are a number of invoice finance providers out there, all with slightly different offerings. Finding the best option for your business isn’t always easy. Before signing up to a particular lender you should consider the following:-
1. Credit Control – Factoring vs Discounting
If credit control is an issue in your business, or is a hassle you could do without, you are more likely to be drawn to invoice factoring. The additional service could offer significant benefits to your business. On the other hand, if maintaining the relationship with your customer during credit control, or keeping the facility confidential is key, invoice discounting could well be right for you.
2. Total charges – not just the headline figures
When taking their payment for funding your invoice, lenders will usually charge their fees as shown above. Understanding their fees is important and discussing them with an experienced and impartial advisor can help you understand the costs involved for your business.
3. Hidden fees or terms
Not all providers will show all fees on their facility documents. Make sure you read all accompanying paperwork to ensure you understand all fees and terms. The results of a cost comparison between 2 providers can vary significantly if all fees aren’t taken into consideration.
4. Concentration limits
A concentration limit is how much of the total facility amount is allowed to be with a certain debtor.
For example, if your concentration limit was 30%, and your facility £1,000,000, then no more than £300,000 would be lent against invoices raised to this customer. If debt with your largest customer hit £500,000, then only £300,000 would be seen as eligible debt. This would effectively reduce the prepayment level.
Concentration limits only tend to become an issue if a single customer hits 20% of total money owed to you. Some facilities will impose a strict 20% concentration limit whereas others would accept 100% of the debt with a single customer.
When looking to take on a new facility, consideration should be given to both now and what may happen in the future. By thinking ahead, issues can be avoided in the future when you may need to release the funds quickly.
Who Should Take Out Invoice Finance?
Invoice finance is available to any businesses that are paid on terms of 30 days or more. The delay between an invoice being issued and payment being received can disrupt cash flow. This is especially pronounced when there is a significant upfront cost for supply of that service. There are several industries that tend to benefit greatly from taking out an invoice finance facility, the most common are:-
Of course, any company supplying on terms of 30 days or more can benefit, regardless of industry.
The Benefits of Using Invoice Financing
Invoice Finance is used by companies at almost all stages of a company’s life cycle, with many business owners choosing to fund their cash flow using this form of finance indefinitely. It can be ideal to fund expansion plans, support the upfront costs of taking on a major new client or simply to help manage and improve the company’s cash flow.
If you choose to take on full Invoice Factoring you will also benefit greatly from the time and hassle involved in managing outstanding debts and the difficult conversations with your valued customers that can arise if they aren’t meeting the deadlines for payment.
The time and money saved in worry about cash flow, managing payments and making decisions based on cash flow rather than the longer term profitability of the company can be crucial in driving a business forward. By taking a look at the Invoice Finance solutions available to you we will be able to help you understand the benefits, show you how the product would sit within your company and also help weigh up the pros and cons of going down this route.
What Terms Do You Offer?
There are many different options available depending on your circumstances. Typical factors taken into account are turnover, the companies you invoice, your industry, and various other factors including profit and desire to win your business.
In general terms, invoice financing charges are made up of 2 major fees – a service charge, normally between 0.2%-3% of your companies turnover. This is made as an ongoing charge for management of the account, any time spent helping you and your business to prosper and use of all of the lender systems. In addition, you will usually pay between 1%-3% on any outstanding funds.
We are also able to offer single invoice discounting products which fund only once with no obligation to ever fund again, and we can even offer full factoring with no minimum contract.
Of course, there are various different options and add-ons available. We will happily compare each lender products and relay the information to you in a simple format and help you make a decision. We would never allow you to agree to a product without you seeing and understanding all of the associated costs in full and when we can be sure that you fully understand the product.
Can You Fund Exports?
Yes, if you’re selling internationally many of the Invoice Discount companies we work with are happy to fund exports and will negotiate how much you are able to advance based on various factors. We are able to talk through your need in full and come back to you with the most competitive options available in the market.
We are still able to offer many of the advantages available to UK only businesses including confidential invoice discounting and even bad debt protection.
If you’re looking to compare invoice factoring companies, are deliberating over rates or are confused and need a cash advance for your business to fund a major event, contact us today and we will put you back in control of your cash flow with our invoice finance solutions.
Many business owners are unaware of the options available to help them prevent cash flow from becoming an issue, whether it be through a tough trading period, or simply growing pains for the business, then ABC’s Invoice Finance could well be the solution for you.
Our advisers are expertly placed to ease your business cash flow using invoice factoring. With the market constantly evolving, there are many options available from full factoring solutions to selective invoice discounting, which allows you to choose which invoices you wish to finance, meaning you can stay in full control at all times.
If you’re looking for costs, deliberating over rates, or even confused and need a business cash advance, contact us today and we will put you back in control of your cash flow with our invoice finance solutions.
Why Use ABC Finance Limited for Invoice Discounting?
ABC Finance Limited have a team of experienced invoice finance experts who are able to assess the needs of your business both now and going forward before negotiating terms with lenders across the market and providing you with an easy to understand suite of say 3-5 options. We then run through the options in full, giving you details of the advantages of each. Only when you are fully happy to take things forward would we ever allow a third party to contact you, and from there we assist you throughout the process ensuring the whole application runs as quickly as possible with as much handled by ourselves as possible, saving you time and money.
Our expert advisors are happy to talk through your current circumstances and give you an overview of how it could work for you. Enquire now or call us on 0800 088 6008 for more information and a fast, personalised quote.