Invoice finance is a common form of business finance where funds are advanced against unpaid invoices prior to customer payment. Invoice finance houses include banks, alternative investment providers and private lenders, used by businesses who trade both domestically and globally. There are two types of invoice financing methods; discounting and factoring.
Invoice discounting can be used for many reasons. It is usually the chosen form of financing where an established business is growing and has a specific customer or a number of invoices that they would like to raise finance against. However, this may not be on all their customer accounts and could not be on all invoices in relation to one specific customer.
Invoice factoring is most typically used where the funder manages the customer collections and ledgers of the business. This allows them to have more control and most invoices are discounted when they are sent out. It is typically used with smaller businesses who have little or no credit control. However, the industry, size and growth trajectory of the business will all be looked at.
Receivables financing (or accounts receivable finance) is a finance arrangement in which a company uses finance flowing in (such as from overdue invoices) to go into an asset financing arrangement. The word ‘receivables’ is often spoken about in corporates or commodity trading houses, but simply put, it addresses finance flowing to a company – through debts owed or the outstanding invoices.