What is the difference between factoring and invoice financing?
Take a look below at some key differences:
- A bank or factoring company will purchase a company’s invoices for 70-85% of the invoice value. When they get paid in full the business will be able to access the remaining percentage (15-30%) minus the factoring company’s fees and interest.
- The use of factoring is disclosed to your clients.
- Factoring normally involved financing your whole sales ledger, even if you need to finance just a few invoices or if the need is only seasonal.
- The third party takes on the companies’ credit checking, the management of the sales ledger and credit control.
- Contract signing, updating and extending fees; annual limit fees on used and unused credit; fees for adding new customers; collateral contract fees.
- Companies can finance just the invoices they choose to and at any time throughout the year. The company will usually receive up to 98% of the invoice value from investors (100% minus fees). Businesses that use the same platform and have a good history pay a smaller fee as they build trust with investors over time.
- The use of invoice financing does not have to be disclosed to clients.
- Responsibility remains with the company for credit checking their clients and their sales ledger.
- No facility required or any contractual tie-in with notice periods.
- No hidden fees or charges.