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Invoice discounting or invoice factoring?

For UK businesses facing cash flow challenges, invoice finance gives access to cash tied up in unpaid invoices.

There are two main types of invoice finance, which differ in terms of confidentiality, control, and accessibility. 

  • Invoice discounting is a loan on a portion of an outstanding invoice, which is repaid when the invoice is paid by the client. 
  • Invoice factoring sells the invoice to a third party at a discount, and they then chase the client for payment. 

To determine which option is best for your business, you need to decide whether you want to maintain your own credit control, how much you want your customers to know about your use of invoice finance, and what products and rates you qualify for. 

 

What is invoice discounting?

Invoice discounting is an advance on money owed to you from unpaid invoices. 

How it works:

  1. You agree to the invoice discounting facility with a lender
  2. When you raise invoices, you ask your customers to pay into a bank account both you and the lender can access.
  3. The lender advances a percentage of the invoice value, typically 80–99%.
  4. Once the customer pays the invoice, the lender withdraws what they advanced you, plus a fee, and the remaining balance is yours.

 

Is invoice discounting right for my business?

Credit control

You remain in control of chasing customer payments and managing those relationships.

Customer awareness

Most products require customers to change the bank account they pay into. There is one invoice discounting product where this can be avoided.

Eligibility

Requires a strong credit history.

Best suited to

Businesses that rely on strong personal relationships with clients, such as PR firms, web designers, advertising agencies, and SaaS.

 

What is invoice factoring?

Invoice factoring involves selling unpaid invoices to a third-party. They then take over customer chasing and payment collections.

How it works:

  1. You sell your invoices to a third-party at a discount, generating instant income.
  2. The third-party company will then approach your clients directly for full payment.  

 

Is invoice factoring right for my business?

Credit control

The invoice factoring company takes over chasing customer payments. This can save you time, but distances you from the customer.

Customer awareness

Customers will become aware that you have sold their invoice to a third party once they are pursued for payment.

Eligibility

Invoice factoring is easier to qualify for, but can be more expensive for your business overall.

Best suited to

Businesses that have large, one-off clients, such as wholesale and manufacturing companies, distributors, etc.

Invoice discounting or invoice factoring?

invoice discounting or invoice factoring

Find out if your business qualifies for invoice discounting or invoice factoring

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When invoice discounting or factoring won’t work for you

These two types of invoice finance will not be suitable for every business, including the following scenarios:

  1. No or low invoices volume: Lenders require invoices to secure funding against, so businesses that are cash-only or have minimal invoicing aren’t eligible. 
  2. Irregular customer payments: Businesses with customers who consistently default or delay payments may face challenges qualifying for these services or incur higher fees.
  3. Customers with a poor credit rating: Lenders may reject your invoices if your clients have poor credit ratings or a history of late payments.
  4. Short-term needs: If your cash flow issue is short-lived or tied to a one-time event, invoice financing might be an inefficient solution. Consider looking into selective invoice finance. 

 

Alternative funding offered by Risecap

If invoice funding  doesn’t work for your business, we can suggest other funding options to get your cash flow moving again. 

 

1. Unsecured business loans

For businesses needing flexible funding without offering assets as collateral, Risecap offers customized unsecured business loans. These can be used for working capital, expansion, or unexpected expenses.

  • Quick access to funds: Great for businesses looking for fast and flexible financing.
  • No collateral required: Ideal for businesses without significant assets to put up as collateral. 
  • Tailored terms: Choose repayment plans that align with your cash flow.

 

2. Asset finance

Asset finance allows businesses to unlock cash flow by leveraging assets or pay off equipment purchases over a period of time.

  • Tailored solutions: Options include hire purchase, leasing, or operating leases.
  • Flexible ownership: Decide whether to own the asset at the end of the agreement or continue leasing.
  • Cost-efficient: Spread the cost of expensive assets over manageable payments.

 

3. Short-term bridging loans

For urgent financial needs, bridging loans offer a quick solution.

  • Fast approvals: Get funds within days.
  • Versatile sage: Cover gaps in cash flow or finance new opportunities.

 

How Risecap can help

At Risecap, we understand that one size doesn’t fit all when it comes to business financing. Whether invoice discounting, factoring, or an alternative solution is right for you, our experts are here to guide you through the options.

Contact us today to learn more about how we can tailor financing solutions to support your business growth and financial stability.

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Risecap Ltd (Company no. 11203916) Data Protection Number ZA553906. The registered address is 3rd Floor, 86-90 Paul Street, London EC2A 4NE. Risecap is a credit broker and not a lender.

We will receive commission from lenders. Different lenders pay different amounts depending on different commission models. For transparency we work with the following commission models: fixed fee, fixed rate of commission, percentage of the amount you borrow. In some circumstances, we do not receive any commission or fee from the lender, we will detail the commission or fee scenario throughout your customer journey

Copyright © 2024 Risecap. All rights reserved.

0203 089 7919
hello@risecap.co.uk

3rd Floor,
86-90 Paul Street,
London EC2A 4NE

Linkedin

Risecap Ltd Data Protection Number ZA553906. The registered address is 85 Great Portland Street, London, England, W1W 7LT. Risecap is a credit broker and not a lender.
Copyright © 2022 Risecap. All rights reserved.