Invoice Factoring Vs. Invoice Discounting

There are certain nuances in businesses today that act as major factors when it comes to practical serviceability. Invoice factoring and Invoice discounting makeup an interesting context for differentiating business processes that work similarly but at the same time are vastly different from each other. The differences, however, are very important when it comes to qualitatively compare the two of these to best understand which of these can prove to be more lucrative. Invoice discounting platforms, as well as invoice factoring services, have long been on the market, providing quick working capital for business owners who need it. Here is a focused look at how their services differ and what could be more beneficial for you.

Benefits of Invoice Factoring

Confidentiality is an important factor when it comes to invoice factoring. This is because the factoring company takes up the role of managing the settlements attached to the company that has taken up the service. This essentially means that their ledgers will not be confidential, as the factoring company requires access so that the due amount could be leveraged from the invoice. Here are the important benefits of invoice factoring.

  • Often collecting payments becomes a problem as defaulting customers become a headache. This totally becomes a non-factor with invoice factoring as it is part of the factoring company’s job to make sure the expected payments come through to them.
  • Another important benefit of factoring is that invoice factoring is generally preferred by smaller companies who don’t mind the fact that their clients will be directly contacted by the factoring companies themselves.
  • Invoice factoring is not a loan. Because of this the company’s that utilises invoice factoring services would not find their ledgers in debt.
  • Because of the hands-on approach employed by factoring service an added advantage would be that your customers would be verified and it could be possible for you to get an indirect review of your product through the factoring company.

You can read more about invoice factoring here.

Benefits of Invoice Discounting

Invoice discounting or invoice financing is the process where companies essentially get financed based on the invoices they are able to raise. Companies with a requirement for quick working capital use invoice discounting companies. They differ from invoice factoring because bill discounting platforms do not manage your ledgers or contact your customers for payments.

  • Unlike invoice factoring your finances do not need to be disclosed in order to make use of invoice financing.
  • It is also possible for your customers to not find out that you are utilising invoice discounting services as part of your business.
  • Around 80-90 percent of your invoice amount can be acquired early by utilising invoice discounting platforms.
  • There is no need to submit collateral for the purpose of using an invoice discounting service as unpaid invoices are the only requirement for utilising the service.

Picking a Winner

Picking a final solution for your financing needs by picking and invoicing platform is always a great idea. However, choosing between invoice factoring and invoice discounting will always come down to the nature of the business you are running. Invoice factoring will be appropriate for small businesses that are looking for quick working capital. Invoice financing could also be appropriate for these companies but they generally prefer invoices that have been raised against accepted blue-chip firms. Another factor is that invoice factoring can be appropriate for much larger firms who would like to free up their own resources by employing an invoice factoring company to deal with the receivables. It is also important to note that KredX is an invoice discounting marketplace that will be appropriate for businesses that are in need of quick hassle-free loans that would not be considered as debt, as they are raised against invoices.

Essentially, it is not possible to pick and choose a better platform as far as both the services of invoice financing and factoring are concerned as they are specific business models that will make sense for companies at different stages of growth and philosophies.