How to Tell Which Debtor Finance Solution Is Best For Your Business
Many businesses need to offer credit terms to retain clients, but slow payments can cause crippling cash flow shortages. Fortunately, businesses can access money owed to them ahead of the invoice due date with invoice discounting and factoring—but, are they the same thing?
In this post, we’re looking at the differences between invoice discounting and factoring. We’ll discuss how they work and which you should to choose to manage business cash flow better.
Debtor Finance: Borrowing against Your Outstanding Invoices
Invoice discounting and invoice factoring are both products of debtor finance. Debtor finance is a form of business funding that uses your accounts receivable (debtor’s book) as collateral to secure a loan. The financer will give you a cash advance on a significant portion (60% to 80%) of the value of your outstanding invoices. The remaining balance is paid when the client settles their account.
They are both short-term finance solutions, but, unlike a traditional loan, you don’t have to generate more revenue to pay it back. Your business has already delivered the products or service, and you’re merely borrowing the money that your business is owed. Your debtors pay the loan when they pay their invoices.
Benefits of Debtor Finance
There are many advantages of invoicing discounting and factoring, of which these are the top benefits.
- Ensures that your business has cash on hand to purchase stock, pay wages and cover overheads.
- Gives you the flexibility to negotiate more attractive payment terms with your suppliers.
- Improves your creditworthiness if you are trying to secure a larger working capital loan.
- Protects your cash flow against slow-paying customers.
The terms invoice discounting and invoice factoring are often used interchangeably, but they are two different solutions.
What Are the Differences between Invoice Factoring and Transaction Capital Business Solutions Invoice Discounting?
With invoice factoring, your business “sells” their debtor’s ledger to the financer. The financer is the factor that takes responsibility for credit control; collecting monies from the debtors and processing the invoice payments.
Factoring is disclosed. Customers are informed that they need to settle their accounts with your factoring provider. Factoring is usually a more expensive solution because the funder takes over the function (using their resources) to chase customer payments. A burden most business are happy to outsource.
A Unique Debtor Finance Solution
Invoice Discounting from Transaction Capital Business Solutions
With over 60 years’ experience in finance provision to companies across all business sectors, we understand the cash flow challenges and concerns that most businesses experience.
That’s why we developed a tailored invoice discounting solution, which provides convenient access to funds at a fixed fee, with no additional upfront charges.
All the benefits of invoice discounting and factoring with less of the risk
We offer a specialised invoice discounting solution using your current sales to boost cash-flow. Your business receives the cash-owed on outstanding invoices ahead of their due date, using your accounts receivable as a security for the loan.
- Your business concludes a sale and delivers the goods or service.
- The invoice and proof of delivery are then uploaded to Transaction Capital Business Solutions.
- We will immediately pay up to 75% of the invoice value, less our minimal fee, into your bank account.
- At the end of the month, your dedicated credit controller at Transaction Capital Business Solutions will submit a statement to your debtor, collect the full amount owing and refund you the remaining portion less our minimal fee.
Our solution offers the affordability of invoice discounting and the convenience of handling collections from your debtors.