Factoring and Invoice Discounting

What are the differences between Factoring and Invoice Discounting?

The concepts of factoring and invoice discounting are very similar. They are both methods of invoice finance. It is well known that UK SMEs faces many challenges in running their businesses. One of the biggest issues faced by businesses today are late payment of invoices. Late payments can have devastating effects on businesses and their survival.

Some invoice finance providers may agree to advances up to 100% of the value of outstanding customer invoices and then settles the balance or makes a second instalment when the customer settles their invoice, minus service fees.

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How does Factoring and Invoicing Discounting Work

The factoring company deals directly with customers for the collections process. Therefore, the recipient business would know that their supplier has an invoice finance arrangement in place. Some businesses may not want their customers to know they are using this type of facility.

Confidentiality can be important to some businesses and they may opt to use invoice discounting. Like factoring, invoice discounting is a form of short-term borrowing against outstanding invoices. However, the lender does not have contact with the payee. The supplier would continue to have control over the invoice and payments.

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