Their parallels cease there. Other than Invoice Financing and Invoice Discounting, both have the same initial name and a comparable use case. The primary distinction between the two is that invoice financing enables you to utilize your invoices as evidence of your ability to repay a loan. Invoice discounting keeps your company in charge of its credit control procedures, and your customer would only need to be aware of involvement from a third party.
Both invoice discounting and invoice financing is cash flow strategies intended to release funds for businesses that are financially stable and run efficiently but could from a quick infusion of cash. Although both procedures are types of invoice financing, there are some significant differences between them. In this blog, we will discuss their differences and which option you should use.
What is Invoice Financing?
Taking out a loan against your unpaid accounts receivable is called invoice financing or accounts receivable financing. As much as 90% of your overdue bills may be provided upfront by a lender as a credit line or a loan.
You'll return the lent amount plus fees and interest to the lender whenever your customers pay the invoice. With invoice finance, your company is still pursuing unpaid debts from your clients.
Sometimes, the invoice finance provider may secretly synchronize with your receivables systems. For example, the financing provider may automatically deduct costs after your client purchases the invoice before sending you the remaining amount.
What Is Invoice Discounting?
Businesses can use this finance option to raise money against unpaid invoices to satisfy their immediate working capital needs. Invoice discounting's primary goal is to increase a company's working capital and cash flow by releasing trapped funds from invoices.
The secrecy provision is typically extended by invoice discounting services, ensuring that clients are ignorant of the company's financial sources. Businesses that choose this option to raise capital run the danger of losing all control over their venture or sales ledger. Regardless of the size of the company, this invoice financing option is a lot more practical for enterprises.
Through its invoice discounting services, Skyscend can assist you in getting quick access to funds in this area. We are one of the top integrated working capital solution providers and currently operate in various countries.
Invoice Financing vs. Invoice Discounting
More freedom in terms of when and which invoices to finance.
More freedom, but you'd often have to finance your invoices.
Depending on the billing total, you start at 1% per month.
To calculate the total cost of financing, fees are typically charged for a mix of the management fee, setup fee, and interest charges.
Payment Collection Process
For payments, the business has a direct relationship with the customer.
Permits dealing directly with customers for payment.
Depending on whether you decide to share with the customer, options are accessible.
You wouldn't have to disclose that you're using an invoice finance facility to your clients
Which invoicing is right for your business?
Invoice finance and invoice factoring are preferable options for businesses involved in large-batch sales. In contrast to receiving an advance on a single large payment, which makes it easier to get more money, receiving credit on many payments could be more efficient because of the time and numerous fees that accumulate. This is why the manufacturing, wholesale, and construction sectors frequently use one of these funding methods.
For companies that are okay with giving up management of their invoices and letting the factoring company collect payments from clients, invoice factoring is a wise option. In addition, smaller firms that lack the resources to dedicate to updating invoices may find it very helpful.
Invoice finance is a preferable choice for companies who want to keep control of their accounts receivable. In addition, invoice discounting can be a fast economic and inexpensive financing option if you have an excellent working connection with your clients and can promptly collect your unpaid invoices.
Several choices, like Skyscend, are accessible if you are interested in running a business that could profit from creating a cash infusion through invoice factoring or discounting. Of course, it is always preferable to engage in an agreement that is the most suitable for your particular circumstance, and we at Skyscend can assist you in figuring out what that should be. Contact us to learn more about how Skyscend can help you invoice financing and discounting services.