Arguably, factoring has issues that invoice discounting doesn't. With factoring, the provider takes the role of overseeing the sales ledger for your entire company. This means that essentially the entire roll of invoices, all of your credit control as well as the responsibility of chasing your customers for settlement of their invoices. It's an extremely hands-on process that involves an invasive prodding into your business accounts. Factoring can be a real pain point if you're wanting to keep your accounts private, as your clients will be made fully aware that you’ve taken on the services of a factoring company. Many of your clients could feel alarmed that a third party is handling their invoices and they may even consider this to be a breach of their privacy or their business contract with your company.
However, with invoice discounting your business retains control of its own sales ledger and you will chase payment in the usual way - under your own company name. In this way, invoice discounting leaves you fully in charge. With invoice discounting you’re just selling individual invoices, and thus your clients won’t ever know you’re invoice discounting. With buffer, there’s no minimum or maximum limit to how many invoices you can sell - which gives an added layer of flexibility that factoring does not allow for.
A key difference between factoring and invoice discounting is therefore in the area of confidentiality and visibility. With factoring, the customer or client settles their invoice directly with the factoring company; so customers will be aware of your factoring arrangement straight away. With invoice discounting, your customers still pay you directly so there is no need for them to know that a third party is involved - making it the better of the two funding solutions for many small to medium businesses.
The benefits of factoring versus invoice discounting and vice versa must be accurately tallied up before deciding the correct approach for your business. While it it is more commonly understood that invoice discounting offers the most benefits, one benefit of factoring is that it comes with a complete credit control and collection service, enabling you to focus your resources on other areas of your business and life. But many businesses will see this as a downside, as it also means decreased privacy around your accounts. With invoice discounting, you attain the advantage of managing your own credit control and debt collection. Hence, your customers are never aware that a third party is involved or that your business might be having cash flow problems.
So exactly who uses factoring and invoice discounting? A business that relies on invoices to get from week to week are the most likely candidates. Those who operate in industries such as construction, recruitment, manufacturing, wholesalers, printers, couriers will likely understand the real and daily challenges of staying cash positive and will find these financial solutions became a regular component of business operations.
If your company provides services or goods to other businesses and gives customers credit terms, factoring or invoice discounting can solve the multitude of problems associated with late incoming payments. Perhaps you have a business startup that requires some flexible start-up finance to get your new company off the ground, as well as growing businesses, will both benefit from invoice discounting. With businesses that rely heavily on incoming invoices to be paid, on cash flow is king, and if you’re wanting to avoid stalling on projects then putting cash back to work for your business as soon as you’ve earned it is the best way to stay afloat.
If you run a business that is struggling then invoice discounting can help to bridge the gap between invoicing your customers and getting paid. So how do you know what options is right for you? The major benefits of factoring are it reduces your overhead expenses, allowing you to make easier cash payments to your suppliers. This should give your company more freedom to take advantage of time-sensitive discounts that may crop up, like reductions in production costs.
The choice to go with either a factoring or an invoice discounting facility will largely depend on the size of your business. When you know that the best person to efficiently manage your own sales ledger and debt collection then the privacy, discretion, flexibility and speed of delivery offered by invoice discounting is likely to be your preferred option.
Why choose buffer?
buffer is the solution you’ve been looking for to help free up your small to medium-sized business’ cash flow. buffer is designed to help your stay cash positive when they need it most. If you know you have upcoming bills but are still waiting on next months payments from clients, buffer could be exactly what you need to give you that extra help.
At buffer, we don’t consider ourselves a business loan company. This is because we only deal with invoices where the work has been completed. Apply today, and your application could be approved within 24 hours. Once you are approved, any further invoices presented will be paid to you on the same business day of application.
The main benefit to buffer, is that once you’re approved you’ll have more time to focus on more important things, like getting on with making your business the best it can be.
For more information on the buffer application process, click here.