Most people assume that all business financing services are similar. Therefore, they cannot seem to decide on the difference between invoice discounting and factoring. With factoring, the supplier plays the role of sales management and credit checks, as well as prosecuting clients so they can settle their invoices in the company. When we talk about someone as a resource, we mean a financial company you call for financial services. The other important difference between invoicing and factoring is secrecy. If you use factoring services, customers will have to settle their invoices with the factoring company rather than your company.
Factoring is a financing method that allows collecting financing based on the value of overdue invoices. Instead of sending bills, and then wait a month or more until the funds arrive, you can almost instantly convert them into cash. Many companies that are just beginning to realize that factoring provides a more flexible source of working capital than overdrafts or loans.
Choosing an account means that your cash flow finance company sells invoice financial rights to a factoring company. The transaction is organized as a sale, and the factoring company will pay the invoice amount in two installments. The first payment is known as an advance payment and is forwarded to your company after the sale of the invoice, which can be up to 90% of the invoice. The remaining part is received from 10% to 20%, discount when the customer settles the invoice.
When applying for a commercial loan, you usually have to wait a moment to find out if the application is effective or not. Factoring is easier and faster because the waiting period is much shorter. Because factoring companies generally buy invoices from a company,
Invoice discounting: Works in the same way factoring work, freeing cash from invoices. The difference is that the lender does not offer credit management services to facilitate the collection of overdue bills. The service releases the invoice value, which can reach 90%, and you can control the loan management. Then you can reach the remaining 10% when customers pay the bill.
Cash is the source of maintenance for every company, and if you owe it to you, but you do not have it, it can cause a lot of frustration and potential headaches. An invoice discount allows you to control your debit account because you are responsible for managing your loan, which means that your company is responsible for collecting the payments due to customers.
The advantage of using invoice discounting is that it does not affect the relationship between you and your clients. There is no reason why they should be aware of the contract, especially if you manage a special account. This ensures that you can continue to provide the same loan terms that you have previously agreed with clients without affecting the cash flow finance company