Invoice Discounting Vs Invoice Factoring

INVOICE DISCOUNTING VS INVOICE FACTORING.

Mr. Omondi supplies computers. He just delivered a huge order to one Government office. As per the agreed payment terms, he will get the payment after 6 months. Now, he has just received another big order. But the problem is he doesn’t have enough money to procure new computers and fulfill this order. His payment is assured from the first order but he will lose the second-order if it’s not delivered on time. This is where invoice financing can help Mr. Omondi. Invoice financing is a way to help to close the $90 billion funding gap faced by small businesses in Africa and can help people like Omondi grow their businesses. This article explains invoice financing by discussing the distinctions between Invoice Discounting and Invoice Factoring.

DEFINITIONS.

Invoice discounting is the practice of using a company’s unpaid invoice as collateral for a loan that is issued by a Finance company. This is a short-term form of borrowing and the amount of debt issued is less than the total amount on the invoice, mostly 80% of the invoice amount. Once you receive the payment from your customers, you repay the loan plus an agreed-upon fee to cover the cost, interest, and risk associated with it.

When it comes to invoicing factoring you “sell” some or all of your company’s outstanding invoices to a third party as a way of improving your cash flow and revenue stability. A factoring company will pay you most of the invoiced amount immediately, then collect payment directly from your customers.

You can already get the differences from the definitions of the two invoice financing options. However, there are more distinctions between the two that will help you understand these differences further.

INVOICE DISCOUNTING VS FACTORING.

Although they are both a means of gaining an advance against unpaid invoices, there are a couple of differences that are highlighted in bulletins below:

• While invoice discounting is a loan secured against your outstanding invoice, invoice factoring companies purchase the unpaid invoices.
• Invoice factoring may be non-recourse which means that if you sell the invoice to the factoring company and the customer refuses to pay, you are not obligated to repay the money yourself. Invoice discounting on the other side it’s a loan, not a sale. This means that the money must always be paid.
• Invoice factoring will require factoring companies to run credit checks on your customers before purchasing your invoice, this doesn’t happen with invoice discounting.

What is the right invoice financing option for you?

This depends on your business size and the economies of scale that comes with it. Invoice discounting is popular with big companies with a steady and reliable customer base, contrary to that, invoice factoring is used by smaller businesses due to the accessibly that it offers. Most importantly, the best invoice financing for your business depends on the needs and circumstances of your business.

WE CAN HELP.

Elevate credit can help you with TRUSTWORTHY professional advice that will ensure you get your invoice financing HASSLE-FREE in a QUICK AND EFFICIENT WAY. Ultimately, we are committed to helping you take care of your WALLET, Free your MIND of cumbersome loan processes and uplift your SPIRIT. LET’S HAVE A CHAT TODAY!!