Invoice financing vs factoring

We are commonly asked about invoice financing vs factoring. What is often actually being asked is the difference between invoice discounting (where the facility is confidential) and factoring where the facility is disclosed.

With factoring, advantages of that type of finance facility are that the administrative tasks such as credit control and the running of the sales ledger are outsourced to the finance company or bank who are providing the facility. This has the benefit to certain companies who do not have their own credit control functions of allowing the in-house team of experts at the bank to do the credit control and help running of the sales ledger. However, as a result of the additional work carried out by the bank, the charges of running this type of facility are more than in facilities which are confidential (commonly called invoice discounting).

If the company does not need to take advantage of the sale ledger and collection expertise of the bank, then they will commonly enter into an invoice discounting or confidential facility which means that the facility itself is less expensive whilst maintaining their own in-house credit control. Clearly, some companies do not want the end customers to be aware of the fact that they have entered into any form of finance facility at all in respect of their invoices and as such, confidential factoring or invoice discounting means that they can maintain the finance facility but completely confidential to any other party. It is not disclosed anywhere and no notice of assignment of the debts between the business and the factoring company are ever sent to the end customers (unless in exceptional circumstances, the business enters into financial difficulties and the invoice discounter revokes its rights under the finance facility to notify the customers of the assignment of the debts).

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Francis Wilks & Jones is the leading invoice finance law firm. Our team has huge experience in all aspects of invoice finance. Whatever your invoice finance related question please contact us now and we can help you.