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What is the difference between invoice discounting and factoring?

HomeInvoice DiscountingWhat is the difference between invoice discounting and factoring?

What is the difference between invoice discounting and factoring?

Factoring and invoice discounting, has helped thousands of businesses to release funds tied up in unpaid invoices.

We are often asked “What is the difference between invoice discounting and factoring?”. The main difference is that invoice discounting is confidential and factoring is not.

What are the Advantages?

  • They provide a fast repayment against the sales ledger
  • They increase working capital
  • They improve cashflow
  • Confidential invoice discounting (CID) was designed for growing businesses, providing working capital to fund growth
  • In some limited cases if a company has little or no debt, it can use confidential invoice discounting to get a one-off benefit in releasing cash from the sales ledger to fund larger projects.
  • For an organically growing company, increasing within its own means, confidential invoice discounting will allow better cashflow management to facilitate that growth.

What are the disadvantages

  • Business with fluctuating turnover patterns, often makes confidential invoice discounting a poor option.
  • If a company using confidential invoice discounting has two consecutive poor invoice months, it can leave it very short of funds.
  • Confidential invoice discounting holds an inherent risk if a business becomes stagnant.
  • Confidential invoice discounting holds an inherent risk if a business starts to contract.
  • If confidential invoice discounting sees this happening a business failing the chances are they will reduce the advance rates. If this happens it will make the problem worse and could be the demise of the company.
  • Once a debt goes over a certain age, which could be a maximum of 120 days, that will come off a confidential invoice discounting facility, reducing the size of the facility.
  • If you’re getting paid slowly and have a confidential invoice discounting facility, that will put extra pressure on you.
  • Most confidential invoice discounting facilities will have been revised downwards due to the falling creditworthiness of the companies on the sales ledger, due to the recession.
  • When confidential invoice discounting users come up against a bad sales month they may be forced to take on clients or sell goods at low prices, even at cost, for cashflow reasons.

Get an invoice discount quote today by calling 0800 597 4757 or apply online to compare factoring and invoice discountingcompanies

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