Advertising
Advertising

The Differences Between Factoring and Invoice Discounting

The Differences Between Factoring and Invoice Discounting

Invoice finance funds

    Collectively known as invoice finance, factoring and invoice discounting release cash against monies already earned. Both facilities can prove to be a vital cashflow solution in this difficult economic climate.

    Advertising

    Obtaining finance is becoming more of a luxury as the banks are not as credit-friendly as they were prior to the global economic recession. The situation is even made grimmer as the costs of running a business are on the rise. How do businesses survive?

    Advertising

    Abiding to a professional and concise business plan, using the right accountant and having the right staff are a few key factors that can give a business momentum in the short run. However, cashflow is what makes a business. Careful management of cashflow is key to business continuity and survival.

    Advertising

    It is a common mistake to confuse cashflow management with cost optimisation. Cashflow management is ensuring that your income surmounts your expenditures at any particular time in the business cycle. Cost optimisation are techniques used by businesses to realise recurring cost savings.

    Many businesses are caught flat-footed as they often have huge chunks of cash locked up in outstanding invoices. Customers could take up to 90 days to complete payment for invoices. Though this may be in the terms of the agreement, your business might be financially strained, with limited working capital to cover payroll, reduce existing debt or cover administrative overheads.

    This is where factoring and invoice discounting are here to help. Instead of waiting 30-90 days for customers to settle their bills, either facility can release up to 95% of the value of your outstanding invoices, usually within 24 hours of raising the invoices. Both facilities work in a similar way – release a pre-arranged percentage of the sales ledger almost immediately. However, they differ in the following ways:

    1. Because the funds are advanced against monies to be paid, there’s a credit control function midway through the process. A factoring arrangement allocates the credit control task, including chasing customers for payment to the finance provider. Invoice discounting allows the business to manage its clients and outstanding payments.
    2. Based on 1) above, invoice discounting is tailored to larger businesses with turnover in excess of £250k and in-house credit control systems. On the other hand, factoring is a particularly attractive option for smaller companies, including start-ups.
    3. With invoice discounting, the customers are unaware of the lender’s involvement. Moreover, factoring is typically a disclosed arrangement as the customers are notified of their invoice payment.

    Advantages of Factoring

    1. The funds released improve your cashflow position and the additional working capital created enables your business to expand.
    2. Factoring boosts your bargaining power, enabling you to capitalise on early vendor opportunities and discounts.
    3. The cash advanced grows alongside your business. This means that as your business grows, you could have access to more funding.
    4. The credit control function outsourced to the finance provider allows you to concentrate on growing your business.
    5. Unlike other forms of commercial finance such as bank overdraft, factoring could be a flexible funding facility for start-up companies.

    Advantages of Invoice Discounting

    1. The funds released improve your cashflow position and the additional working capital created enables your business to expand.
    2. Invoice discounting boosts your bargaining power, enabling you to capitalise on early vendor opportunities and discounts.
    3. The cash advanced grows alongside your business. This means that as your business grows, you could have access to more funding.
    4. The facility is typically administered on a confidential basis. You stay in contact with your customers with them unaware of the funding agreement.
    5. Because the funds are released almost immediately, there’s some certainty about cash projections.

    Other Forms of Factoring

    1. Recourse Factoring: The finance provider manages your sales ledger without any credit protection. This means that if your customers default, you are liable for all credit costs.
    2. Non-recourse Factoring: This is a factoring arrangement where the finance provider takes full responsibility of the sales ledger and bears any risks associated with bad debt. This saves your business the hassle of worrying about customer defaults.
    3. CHOC’s: Factoring is assumed to be a disclosed arrangement with outsourced credit control. However, CHOC’s (Client Handles Own Collections) facility keeps the business in charge of their sales ledger. This could be a cost-effective solution for SMEs with in-house accounting systems.

    Other Forms of Invoice Discounting

    1. Recourse Invoice discounting: The finance provider manages your sales ledger without any credit protection. If an invoice remains unpaid, the finance provider reclaims the cash previously advanced and you take on the credit control function.
    2. Non-recourse Invoice Discounting: You retain full control of your credit control system, but the finance provider offers you bad debt protection for the life of the contract.
    3. Disclosed Invoice Discounting: Your customers are notified of the lender’s involvement, making it a less risky proposition to lenders than confidential ID.
      Advertising

      More by this author

      What Drinking Coffee Does to You How to Complain Successfully (and Get Results) Invoice finance funds The Differences Between Factoring and Invoice Discounting Accountancy Services How to Find the Right Accountant for Your Business

      Trending in Money

      1 Want to Get Free Product Samples Like Bloggers and Beauty Gurus Do? Read This. 2 8 of the Best Places to Buy Used Goods Online 3 How To Pay Off Credit Card Debt Fast: 7 Powerful Tips 4 How To Make a Million Dollars in 7 Steps 5 7 Cheap but Powerful Products That Can Help Your Waste Less Food and Save Money

      Read Next

      Advertising
      Advertising
      Advertising

      Last Updated on February 11, 2021

      Want to Get Free Product Samples Like Bloggers and Beauty Gurus Do? Read This.

      Want to Get Free Product Samples Like Bloggers and Beauty Gurus Do? Read This.

      Imagine receiving a regular supply of free samples through your letterbox?

      These free samples by mail could include things such as cleaning products, cosmetics and packaged food.

      Free samples are a great way to try out some of the latest products. One week you may have a new toothpaste to try – the next week you may be snacking on a delicious chocolate cookie sample.

      As the saying goes, variety is the spice of life. And by requesting free samples by mail (I’ll show you how shortly), you’ll have not just variety – but fun too!

      Tell Me More About Getting Free Samples Sent to My Door!

      So, it looks like I’ve caught your interest. That’s great news!

      Just before I introduce you to 10 places where you can get free samples by mail, let me clarify a couple of things.

      Firstly, all the places I’ll talk about are currently active in sending out free samples to consumers. (In other words, no links to out-of-date or dead pages!)

      Advertising

      Secondly, location is key. If you live in North America, then you’ll have a wide selection of places to sign up to. In other locations (for example, Africa, Asia and Europe), you’ll have fewer choices – but free samples by mail are still a possibility.

      Lastly, to whet your appetite for the freebies, here’s a short list of product examples:

      • Pet food.
      • Beauty products.
      • T-shirts.
      • Greeting cards.
      • Wallets.
      • Snack bars.
      • Vitamins.

      Free Samples by Mail… Tell Me Where to Get Them!

      It’s now time to share my recommendations for the best sites to claim free samples from.

      Let’s start with…

      #1 SampleSource

        This company sends out boxes of 6-12 free samples about four times a year. Products include baby wipes, cereals and tissues. Register with SampleSource to be notified of the availability of their free samples. (Canada and U.S. only.)

        #2 Influenster

        Advertising

          As their name suggests, Influenster wants to send free samples to you in exchange for you sharing about the products on your social media accounts. Once you’ve become a member (join for free!), they’ll send you a box of free goodies every few months. The more you share pictures and reviews of the products – the more free samples they’ll send you! (All major territories.)

          #3 PINCHme

            This organization will send you free samples in the hope that you’ll then go out and buy the equivalent full-size products. To receive regular boxes of free food, drink and cosmetic samples (and sometimes coupons), then sign up and create your profile. (U.S. only.)

            #4 House Party

              Thinking of throwing a house party? If yes, then be sure to sign up with this company. They’ll send you a box of ‘themed’ products and services that you can hand out at your party. Register with House Party. Wait for the fun freebies to be mailed to you. And then start sending out your party invites! (Worldwide.)

              #5 YoFreeSamples

                This site is a great resource for a whole host of free samples that can be mailed directly to your door (with no survey requirements!). You’ll find anything from books to perfume, with new offers listed daily. Head over to their site to see what’s currently available. (Mostly U.S., with occasional offers for other countries.)

                Advertising

                #6 Magic Freebies

                  The U.K.’s most popular freebie site. Register for their email newsletter, and they’ll send you a daily email with eight free sample offers. These include products such as disposable razors, dog bowls, and even fake tan! So, what are you waiting for? (U.K. only.)

                  #7 SweetFreeStuff

                    Since 2002, this simple site has been linking to the best free sample offers currently available. To get started, sign up to their daily email newsletter, which contains links to the latest offers. As well as free samples, SweetFreeStuff also gives information on coupons and deals. (Worldwide.)

                    #8 Sample A Day

                      Would you like to receive a notification of a new free sample every day? Well, that’s the promise from this site. They claim to thoroughly research all offers, ensuring there are no catches or hidden surveys! From baby products to socks, this site is sure to have something for you. Registration is super-easy. Simply enter your email address. (Australia, Canada, U.K. and U.S. only.)

                      #9 Pretty Thrifty

                      Advertising

                        This site specializes in free beauty products, but also lets you claim free samples such as energy drinks, snack bars, and even magazine subscriptions. Pretty Thrifty has more than 85,000 followers on social media, so clearly knows how to attract free sample hunters. One thing that makes Pretty Thrifty stand out from most of their competitors, is that their email newsletter is available in daily, weekly and monthly formats. (Mostly U.S., with occasional offers for other countries.)

                        #10 CrazyFree

                          My final tip for getting the best free samples by mail, is Australian company CrazyFree. Their funky website offers big brand free sample offers, which currently include items such as Dolce & Gabbana perfume, Coke Zero, and Happy Dog pet food. To claim the offers, select the free samples you would like, and then complete their registration form. (Australia, U.K. and U.S. only.)

                          Receiving regular free samples by mail is a fabulous way of testing out the latest products on the market (and some that aren’t even on the market yet!)

                          You’ll impress your friends and family with all the free stuff you’ll be receiving. And take it from me… it’s a fun, free and rewarding hobby.

                          Read Next