Invoice finance is a popular method of business financing, allowing businesses to access cash flow quickly and easily by using their outstanding invoices as collateral. However, many business owners are concerned about the cost of these financing options, particularly confidential invoice discounting, factoring, and invoice finance. In this blog, we will explore the costs associated with each of these financing options, and help you determine which option is the best fit for your business.
Confidential Invoice Discounting:
Confidential Invoice Discounting is a popular financing option for businesses that want to maintain control over their customer relationships and maintain a professional relationship with their customers. This type of financing allows businesses to use their outstanding invoices as collateral to receive a cash advance from a lender without their customers knowing that they are using an invoice finance provider.
The cost of Confidential Invoice Discounting is typically based on a discount charge, which is a percentage of the invoice value. This charge can range from 0.5% to 3% of the invoice value, depending on the lender and the risk involved. In addition to the discount charge, there may be other fees associated with Confidential Invoice Discounting, such as an arrangement fee or a service charge.
Factoring:
Factoring is a popular financing option for businesses that want to outsource their credit control and collections processes, allowing them to focus on their core business activities. This type of financing allows businesses to sell their outstanding invoices to a factoring company, who will then advance them a percentage of the invoice value, typically 80-90%, and collect the outstanding balance from the customer.
The cost of Factoring is typically based on a discount charge, which is a percentage of the invoice value. This charge can range from 1% to 5% of the invoice value, depending on the lender, the risk involved, and the creditworthiness of the customer. In addition to the discount charge, there may be other fees associated with Factoring, such as an arrangement fee or a service charge.
Invoice Finance:
Invoice Finance is a financing option that combines the benefits of both Confidential Invoice Discounting and Factoring. This type of financing allows businesses to use their outstanding invoices as collateral to receive a cash advance from a lender, and also outsource their credit control and collections processes to the lender.
The cost of Invoice Finance is typically based on a discount charge, which is a percentage of the invoice value, and a service charge, which covers the cost of credit control and collections. The discount charge can range from 0.5% to 3% of the invoice value, and the service charge can range from 0.5% to 1.5% of the invoice value, depending on the lender and the risk involved.
Which financing option is the best fit for your business?
The choice of financing option will depend on your business’s individual needs and circumstances. If you want to maintain control over your customer relationships and credit control processes, Confidential Invoice Discounting may be the best option for you. If you want to outsource your credit control and collections processes and receive a higher advance rate, Factoring may be the best option for you. If you want the benefits of both Confidential Invoice Discounting and Factoring, Invoice Finance may be the best option for you.
In conclusion, the cost of confidential invoice discounting, factoring, and invoice finance will depend on various factors, such as the lender, the risk involved, and the creditworthiness of the customer. While these financing options may involve fees and charges, they can provide businesses with quick and easy access to cash flow, allowing them to focus on their core business activities and grow their business. If you are considering invoice finance as a financing option for your business, it is important to do your research and compare different lenders to find the best fit.
Get in touch with us at Funding Bay for your invoice financing needs.
Check out our invoice finance calculator.
