When it comes to financing your business, you may have heard the terms invoice financing and factoring. Unfortunately, if you’re like many business owners, you don’t know exactly what they are?
Invoice factoring and financing are one source of funding for business, however, they’re not a regular loan. It’s somewhat similar to a secured loan because the funding is secured by your outstanding client invoices that are unpaid.
Both methods of funding allow you to borrow against the value of your unpaid invoices, which lets you reduce the date between the invoice and the due date for a fee.
What Is Invoice Financing
If you have an in-house credit control system or have an outsourced provider handling invoicing for you, then invoice financing is the best options.
The invoice finance provider will provide you with funds that equal a percentage of your outstanding invoices. Usually, that rate is around 90 percent.
You remain responsible for obtaining payments from your customers, as well as all other aspects of the invoicing process, therefore you remain in control of your company’s finances. Then when an invoice is paid, you receive the balance owed.
You must take into account the amount you borrowed and the finance fee, each time you receive payment on an invoice.
What Is Factoring
If your business does not have in-house credit control and would like to take advantage of invoice financing, you can use factoring, which is a full-featured financing solution.
The factoring provider will take care of all of your business’s credit control processes. They will chase down outstanding invoices and speed up the time it takes to receive payment from customers.
Some business owners are reluctant to hand over their credit control functions since it means giving up control of one of the key elements of your business’s daily operations. However, by outsourcing to an experienced, professional third-party provider, a company can streamline their invoicing process, making it possible to receive payment quicker.