Invoice finance is where an independent third party agrees to purchase an outstanding invoice for a fee. Invoice financing has been a financial instrument available for businesses and SMEs for decades. It has been traditionally offered by lenders such as banks as well as private financiers.
In this article, we provide a high level description between the different types of Invoice Financing available in today’s market.
Factoring / Invoice Discounting
This is a business financial instrument where it utilises account receivables on the balance sheet to obtain immediate working capital by selling them on for a discounted fee.
For further readings on invoice factoring and invoice discounting, please click here.
Asset Based Lending
It is designed to allow businesses to obtain lending against the value of its assets. This could be its inventory of raw material or finished goods or even its fixed assets
|Factoring||Invoice Discounting||Asset Based Lending|
|Mid to long term funding needs||Yes||Yes||Yes|
|Requires business to business receivables only||Yes||Yes||Yes|
|Requires legal title to receivables||Yes||Yes||Yes|
|Requires robust ‘in house’ ledger control||No||Yes||Yes|
|How much advance Can be Expected.||Up to 90% of the value of eligible invoices||Up to 90% of the value of the outstanding balances from eligible debtors.||Up to 90% of the market value of the eligible assets|
|Do you collect money on my behalf?||Yes||No||No|
|Do your customer know of this arrangement?||Yes||No||No|
|Do I have protection from debtor insolvency both domestic and export?||No||No||No|
|Does funding increase working capital?||Yes||Yes||Yes|
|What kind of turnover is required?||Small (less than 200k)||Medium (less than 10 millions)||Large (over 10 millions)|
|What are the differences in pricing?||Generally more expensive than Asset based lending||Generally more expensive than Asset based lending||Generally cheaper than invoice factoring and invoice discounting|
|How quick is the assessment / on-board process?||Fast||Fast||Slowest|
InvoiceInterchange offers an online Invoice Discounting facility which is simple, flexible and fast. SMEs can either do a whole turnover invoice discounting or just sell selected invoices.
Get in touch to find out more