Business Invoice Finance involves both factoring, in which a third party or factor takes over management of your business receivables; or invoice discounting, in which your business retains control of its sales ledger.
There are many different terms used to describe the process of Business Invoice Finance – and several different financial products within either factoring (third party credit control) or invoice discounting (you control your own sales ledger).
It is therefore important to decide what type of arrangement you are seeking regarding how your business invoices (receivables) are managed.
Business Invoice Finance – the options
Factoring companies may offer Business Invoice Finance solutions that include various Invoice Discounting options.
There are now many companies specialising in Invoice Discounting products, however, and if this type of Business Invoice Finance would suit your company better, make sure you obtain quotes from companies specialising in Invoice Discounting.
Some other helpful pointers in choosing a product are:
- If you are a start-up or SME, it is also important to choose a company offering Business Invoice Finance that has expertise in these types of businesses, including Single Invoice Discounting or Selective Factoring, in which you choose which receivables are used for factoring or invoice discounting
- Also look for companies that have expertise in your sector – some industries like construction or haulage require a dedicated product because of the higher risk of payment disputes or non-payment
- Look for a specialist with local knowledge of your region and also knowledge of the sector your business operates in
- If you trade with overseas customers, look for companies that offer Export Invoice Discounting solutions, which will have local agents who can make receivables collection much easier
- Confidential Invoice Discounting means your customers will not know how your business invoices are being managed – Disclosed Invoice Discounting means your customers will be aware of the arrangement
- Factors act as a third party – some customers may not like this while on the other hand using a factor can encourage debtors to pay more readily
- Use factors or invoice discounters which are members of the Asset Based Finance Association (ABFA).
Business Factoring and Invoice Finance Discounting – the Benefits
Factoring was first introduced in the UK in the 14th century and developed as a result of transnational trade.
However, whereas once the area of Business Invoice Discounting might have been regarded as a last resort for companies seeking to resolve cashflow difficulties, in recent years it has begun to be seen as a safer option because the creditworthiness of the debtor (ie customer) assessed, along with the financial position of the business involved.
- Factoring companies are often used for debt collection and non-payment solutions and therefore committing to a factoring arrangement can free your business from the constraints of having to chase debts if a customer who was previously reliable suddenly stops paying on time or exceeds its credit limit
- Factoring arrangements can be more difficult to terminate so make sure there is a process in place for this with any factor you choose.
- Invoice discounting means your business retains control of its sales ledger – and customers need never know that you are drawing funding from receivables
- As in factoring, you can select which invoices to use for invoice discounting – and by using Non Recourse Invoice Discounting, there is no risk of having to pay back any monies forwarded against receivables if a customer defaults on paying an invoice.
The area of Business Invoice Finance has continued to grow despite any economic constraints financial institutions might be experiencing.
Releasing cashflow through receivables is considered a more secure option than a bank loan or other asset-based loan because it involves a lump sum of money that does not have to be repaid to the lender, unless you opt for Recourse Invoice Discounting.
If you would like more information about any Business Invoice Finance solution, complete the online enquiry form to receive free quotes within 48 hours.
Companeo’s agreed suppliers are experts in SMEs, so if you are a start-up or are seeking funds for developing and SME – or simply wish to release cashflow – our specialist factor and invoice discounting companies will be able to advise you no the best deals in business invoice finance available.
Tags: business, business factoring, business invoice, business invoice finance, business invoices, export invoice discounting, factoring companies, finance discounting, invoice discounting, invoice finance, invoice finance discounting, invoice finance solutions
Related posts
B2B infos
