Invoice Discounting and Factoring – What’s the Difference?

When invoicing isn’t your business, it’s easy to get confused by jargon. But as all businesses rely on money coming in, it quite literally pays to know your factoring from your finance.

Two terms to commonly get muddled up are invoice discounting and invoice factoring so, if you’d like a quick explanation, read on!

Invoice factoring is when a business sells its invoices to a factoring company. We all know what it’s like – we complete a commission, send off the invoice and then… nothing. Not for weeks or, in many cases, months, anyway. Even when you set out agreed payment terms in the contract before any work is carried out, and even though the Late Payment Act requires clients to pay up within 30 days, businesses are often left waiting far beyond this deadline.

Imagine, then, if you sent off an invoice and within a matter of hours the money reached your account. Well, that’s pretty much what happens with invoice factoring. The factoring company will provide you with between 80 and 90% of the invoice total immediately. They also take over the responsibility and hassle of chasing the payment, taking a percentage of the final payment as their fee when the invoice is finally paid.

An independent invoice factoring broker like Simply Factoring Brokers will quite simply find the right deal for you. Rather than leaving you to phone around a number of invoice factoring firms, explaining your situation each time, we do all the legwork and come up with the best deal. All you have to do then is send your invoice to the factoring firm we recommend – and take your money!

Invoice discounting, on the other hand, is a means of short-term borrowing with the aim of strengthening a firm’s cashflow position.

Your business might have taken on a big contract but isn’t able to invoice the client until the project is completely finished. So you know that a significant sum of money is on the way – but might need the finance to meet other business commitments until the payment reaches your account.

At Simply Factoring Brokers, we are in contact with the leading UK discounting firms, who can supply up to 90% of the finance until that invoice is paid. After a five-minute chat with you to get the right information about your business, we will select a preferential deal for you at the best rates, equipping your business to focus on growth while the project in question is finished.

One way in which invoice discounting differs from invoice factoring is that it is up to you to chase the payment from your client. This must be paid into a dedicated account, after which the invoice discounting firm will release the remaining percentage of the funds to you, minus a small fee.

Invoice discounting can also be carried out confidentially, ensuring that your debtors have no idea you are using a discounting broker. For more information on any invoicing matters, call Simply Factoring Brokers on 029 2086 3213 and let us take your worries away!

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