Informal Arrangements : Factoring and invoice discounting

Published: 25/09/2022 By Hannah McCormack

Continuing with our series of blogs on informal options to consider rather than an official insolvency procedure; next we look at Factoring and invoice discounting.
 
So far we have discussed informal arrangements with your creditors,  debt refinancing and debt consolidation 

Factoring

Factoring is when you introduce a third party who collects payments from your customers who owe you money. The third party will give you a cash advance against part of an outstanding invoices value. Once the customer has paid the invoice you get the remaining balance but this will be minus the third parties fees. This can be appealing to smaller businesses who perhaps haven’t got time to chase outstanding invoices and would rather focus on the day to day running of the business or growing the business.

Invoice Discounting

Invoice discounting is very similar to factoring the only difference being that you are still responsible for collecting payments from your outstanding invoices rather than the third party doing it on your behalf. You still receive an initial cash payment from the invoice discounting provider and their fees will be charged once the invoice has been paid. Your customers will not know that you are using this type of service from an invoice discounting provider.

The advantage of both factoring and invoice discounting is that it can stabilise cashflow but just like the other options we have explored it does not address the day to day running of the business and any underlying problems that may need to be modified to become more profitable in the future.
 
Here at TBA we have a corporate finance team who may be able to help with any factoring and invoice discounting needs you have, check out their webpage or give David Rutter our Finance Manager a call on 07565 426138 for a free confidential chat.

 David Rutter - Finance Manager - 07565 426138