What are the Differences Between Invoice Factoring & Invoice Discounting?
Both invoice factoring and discounting involve borrowing against invoices which have been issued or are due to be paid to you. This allows you to realise a percentage of each invoice as soon as it’s raised, rather than having to wait for your agreed 30-90 day payment schedule.
This can have a significant impact on the cash flow of a business.
Although both products are designed to achieve the same result, there are some significant differences between them.
In brief, factoring sees the credit control function pass to your funding supplier. This is in contrast to discounting, which sees you maintain control of this area of your business. For a detailed explanation, read our detailed guide on the differences between invoice factoring vs discounting.
What are the Alternatives to Invoice Finance?
Invoice finance isn’t always the right option for your business, and sometimes more funding will be required than can be raised usingthis method alone. In those circumstances, it may be worth considering the following products:-
- Unsecured business loans – these loans can be used to raise finance quickly for your business without security over invoices, assets or property. We can usually arrange a maximum of £500,000 without security. Unsecured business loans are a popular option as they can be arranged quickly, usually in a matter of days.
- Secured business loans – Secured business loans work in much the same way as a secured loan against a home. Funds are released in a lump sum and repaid over a number of years.
- Asset finance – Asset finance allows you to raise capital to either purchase an item, or to release capital by refinancing existing assets. This can help to protect the cash flow of a business.
- Business Revolving Credit Facilities – The most common revolving credit facility for businesses is the overdraft. However, there are more and more lenders entering the market to offer standalone facilities to business owners. Again, this can be a great tool for managing the cash flow of your business.
How Does Invoice Finance Compare to Unsecured Business Loans?
Both products work in very different ways but can help business owners to manage cash flow.
A business loan is designed to provide a lump sum to your business and is then repaid with set monthly repayments over an agreed term. During the application process, affordability is assessed using historic accounting data for the business. As such, for growing businesses, a loan may appear to be unaffordable according to the lender, when it is actually appropriate.
This works in contrast to invoice finance, which is based on the invoices currently raised. This is useful for growing businesses which are likely to always be cash flow negative during their growth. This is because the facility will naturally grow with you, as funds are released as a percentage of qualifying invoices.
The option that’s right for you will depend on the circumstances of the business, the offers available to you for each product and the future plans of the business.
Will I Be Eligible for Invoice Finance?
We can provide funding for almost any situation as long as you raise invoices to acceptable businesses on payment terms of 30 days or more.
Whether you have adverse credit, a lack of assets in the business or work in an industry that is considered difficult to fund, we are usually able to find a solution.
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If you need some help in choosing the most suitable product, call us on 01922 620008 to talk through your requirements with one of our experts. We won’t charge you any broker fees, so why not take advantage of some free advice to make sure you get the best deal.