Businesses seeking a loan soon find there are many different types of finance available.
One option for firms is to use their unpaid invoices to unlock capital. Called invoice financing, this facility lets companies secure funding with invoices customers have not paid to secure fast funding. Within one day, companies can benefit from 90% of an invoice’s value in their account. There are three main types of invoice financing, and here we look at each in turn exploring their pros and cons.
What is invoice factoring?
Invoice factoring involves a business selling its unpaid invoices to a dedicated factoring that assumes responsibility for collecting customer payments.
What are the pros and cons of invoice factoring?
Firms opting for invoice factoring enjoy enhanced. As credit control is outsourced, they also benefit from a reduced risk of running into bad debt. It’s worth noting that these gains come with higher fees than other types of invoice finance, and customers may become aware that the business is using a factoring company.
What is invoice discounting?
This invoice financing type lets businesses get an advance on unpaid invoices from a financial provider. However, the business takes responsibility for collecting the outstanding payments from its customers.
What are the pros and cons of invoice discounting?
Businesses get greater control over managing customer relationships and the fees involved are lower than using invoice factoring. However, invoice discounting involves more managing collections, and companies carry the risk of non-payments.
What is selective invoice discounting?
As the name suggests, this type of invoice finance lets firms select specific unpaid invoices they want to finance, giving them flexibility to opt to manage other overdue invoices themselves.
What are the pros and cons of selective invoice discounting?
Firms choosing selective invoice finance enjoy enhanced flexibility and can choose unpaid invoices to finance based on business relationships and customer creditworthiness. However, this option isn’t always available for every invoice, and can be more complex than the other two types of invoice finance.
Are you interested in invoice financing for your firm?
If you’re keen to unlock the capital trapped in unpaid invoices, you can look to AJL Finance for strong support. We provide all three of the invoice finance options detailed above, so connect with us today to explore which option is best for your business.
