Invoice factoring and discounting explained

Invoice financing may well be right for you if you need to access capital quickly. There are two main forms of invoice financing available to you. These are invoice factoring and discounting. The main difference between factoring and discounting is that you retain the responsibility of chasing up the payment when you opt for discounting. Invoice factoring involves selling your invoice to a finance firm, who then pursue payment themselves. If your invoice is overdue, you don’t expect to trade with the client again, you don’t have the time to seek out payment yourself or you don’t mind the client knowing you have worked with an outside company to get paid, factoring may be for you.

Invoice factoring and discounting explained

Which option should I choose?

Invoice discounting could be the best option if you don’t want your client to know you’ve used a financier and you have a good relationship with them. It may also be the right choice if you expect to sell products or services to the client in future. You will still be the first point of contact for the client if you opt for discounting. With discounting, you borrow money against your invoice, then settle up with the finance company after the invoice has been paid.

Make an educated decision

More and more companies are opting for invoice discounting and factoring when they need to boost their cash flow and obtain money quickly. Invoice financing is being used by companies from a wide variety of sectors. It can help you take advantage of any investment opportunities you may have been given and allow you settle your own debts, driving your business forward. It could be wise to approach a number of finance firms and see what they have to offer before you come to a final decision on invoice financing.

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