When it comes to running a business, it’s important to choose the right financial methods and techniques to ensure your company’s growth. With that, you may be confused about the different terms that may surface, such as invoice factoring and invoice discounting.
As your business explores the different alternatives to financing and fintech, bumping into these terms is inevitable. For this reason, it pays to be aware of what their big differences are. Of course, it’s worth talking to financial experts so that you can formulate effective financial solutions and see if these alternatives work well for your brand.
If you’re curious to know the differences between factoring and invoice discounting, keep reading. In this article, we’ll dig deeper into their differences and dive into their methods in detail. Let’s take a look!
What are the Similarities of Invoice Factoring and Invoice Discounting?
Before we get into their difference, you should know that invoice factoring and discounting have some things in common, like invoice-based financing strategies.
- Time and Amount of Money: For both cases, they are released between 70 to 90 percent of the value of an outstanding invoice within a time period of 24 to 48 hours.
- Financial Considerations: Both types don’t require provable assets or company credit checks. If anything, they only rely on the credit rating and reliability of the company.
- Good Customer Relationships: When customers pay on time, they get better rates. Because of this, these invoices serve as a tool for rewards, improving client relations.
What are the Biggest Differences between Invoice Factoring and Invoice Discounting?
The biggest difference between invoice factoring and discounting is who collects the payment from customers.
- Factoring Payment and Invoice Discounting: When it comes to this, the factoring company collects the whole invoice, and because of this, you don’t have to wait for the company to make their payment. This is particularly effective if you’re looking to expand your business overseas since the factoring company will directly deal with your foreign clients. With that, you get to save more time and money, eliminating the hassle of miscommunication.
- Invoice Financing Payment Collection: When you use invoice financing, you’re still the star of the show. This means that your company will issue the invoice and pay the invoice financing company. With that, you need to make the extra effort to contact your clients and collect payments yourself. With this, you can still build strong relationships with your clients since you’ll work with them directly.
How Do I Know Which Works for Me?
There’s no doubt that factoring and invoice financing works for any company, especially if you’re dealing with bulk sales. These companies often include manufacturers, wholesalers, and construction.
If your business and clients fit the right category, you’ll need to know a few other things, such as your cash flow issues, if your business will benefit from reinvesting capital, if your business is willing to use factoring or financing to invest faster, if your company requires greater flexibility, and more.
The Bottom Line: Work with the Right Financial Experts
When it comes to big financial decisions like this, it’s important to speak to financial experts so they can come up with the best financial solution for your business based on your financial goals. So, if you’re thinking of sticking with invoice factoring or invoice discounting, it’s best to speak to experts to know what’s right for you.
How Can We Help You?
Porter Capital offers capital solutions to businesses all over the US in various industries. Being a direct lender and factoring company, we have provided over $6 billion in funding ever since we started. From invoice factoring to dip financing, working capital loans to asset-based lending — we’ve got you covered.
Need to learn more about invoice factoring and invoice discounting? Reach out to us today!