Invoice discounting

Invoice discounting is very similar to u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/invoice-factoring/u0022u003einvoice factoringu003c/au003e. The main difference is that with invoice discounting your customers won’t be aware that you are using a finance provider to help with your cash flow – hence why it’s often called ‘confidential’ invoice discounting. You remain in control of your sales ledger, you collect payments as normal and you maintain communication with your customers.u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eYour lender may, however, insist on a ‘disclosure’ clause – this means you will have to mark invoices as ‘assigned to an invoice provider.’

If you don’t have in-house credit management processes in place, u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/invoice-factoring/u0022u003einvoice factoringu003c/au003e might be a more suitable option, because you wouldn’t need to chase invoices yourself.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eInvoice discounting and invoice factoring are generally more widely available to established businesses rather than startups – you need to have a reliable revenue.

Because invoice discounting is a riskier prospect for your finance provider than factoring, you might find it hard to obtain if you’re an early-stage business. To qualify for invoice discounting you need to reassure your finance provider that they’ll be repaid by your customers after advancing money to you. So you will need:rnu003culu003ern tu003cliu003ean established method of credit collectionu003c/liu003ern tu003cliu003ea track record that proves that your clients pay on timeu003c/liu003ernu003c/ulu003ernIf you want to finance only specific invoices – and not your entire sales ledger – then you might want to consider u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/selective-invoice-discounting/u0022u003eselective invoice discountingu003c/au003e or u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/spot-factoring/u0022u003espot factoringu003c/au003e.

If you don’t have in-house credit management processes in place, u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/invoice-factoring/u0022u003einvoice factoringu003c/au003e might be a more suitable option, because you wouldn’t need to chase invoices yourself.u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eInvoice discounting and invoice factoring are generally more widely available to established businesses rather than startups – you need to have a reliable revenue.

Because invoice discounting is a riskier prospect for your finance provider than factoring, you might find it hard to obtain if you’re an early-stage business. To qualify for invoice discounting you need to reassure your finance provider that they’ll be repaid by your customers after advancing money to you. So you will need:rnu003culu003ern tu003cliu003ean established method of credit collectionu003c/liu003ern tu003cliu003ea track record that proves that your clients pay on timeu003c/liu003ernu003c/ulu003ernIf you want to finance only specific invoices – and not your entire sales ledger – then you might want to consider u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/selective-invoice-discounting/u0022u003eselective invoice discountingu003c/au003e or u003ca href=u0022https://swoopfunding.com/za/knowledge-hub/spot-factoring/u0022u003espot factoringu003c/au003e.

u003cstrong data-rich-text-format-boundary=u0022trueu0022u003eInvoice discounting u003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022https://swoopfunding.com/za/knowledge-hub/invoice-discounting/u0022u003eInvoice discountingu003c/au003e is the simplest type of invoice finance. It involves a lender advancing you money against unpaid invoices and charging a fee based on the value. This form of finance is suitable for bigger companies with a relatively high revenue as it allows them to secure funding against their entire sales ledger. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eInvoice discounting is confidential, so your customers don’t know you’re using their invoice as collateral. Your company remains in charge of its own credit collection. It’s also considered riskier so your lender may require evidence that your customers pay promptly and you have in-house capacity to chase outstanding payments. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cstrongu003eSpot factoringu003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022https://swoopfunding.com/za/knowledge-hub/spot-factoring/u0022u003eSpot factoringu003c/au003e allows you to borrow money against specific unpaid invoices rather than your sales ledger, so it’s also suitable for companies with at least a few large customers. The main difference with selective invoice discounting is that spot factoring is disclosed. You hand over control of the invoices you choose to finance to the lender who collects payment from your customer and forwards your company the balance less its fee. Spot factoring may suit SMEs that don’t have the resources to chase outstanding payments and are happy to let a lender take the responsibility on their behalf. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cstrongu003eConfidential invoice finance u003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022https://swoopfunding.com/za/knowledge-hub/confidential-invoice-finance/u0022u003eConfidential invoice financeu003c/au003e is a suitable funding option if you prefer your customers to remain unaware that you’re securing finance against their invoices. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eConfidential invoice finance refers to forms of invoice finance that aren’t disclosed to your customers. We’ve already described invoice discounting, but confidential invoice factoring and CHOCs (Customer Handles Own Collections) are other examples of this type of finance. u003cbr data-rich-text-line-break=u0022trueu0022 /u003e u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cstrongu003eCHOCs (Customer Handles Own Collections)u003c/strongu003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003ca href=u0022https://swoopfunding.com/za/knowledge-hub/chocs-customer-handles-own-collections/u0022u003eCHOCs, short for Customer Handles Own Collections,u003c/au003e is a cross between invoice discounting and invoice factoring. As with invoice discounting, you deal directly with your own customers. However, like invoice factoring, your customers pay the lender instead of your company, so they know you’re using their invoices to secure working capital. u003cbr data-rich-text-line-break=u0022trueu0022 /u003eu003cbr data-rich-text-line-break=u0022trueu0022 /u003eCHOCs are suitable if you’d like to maintain a direct relationship with your client or for early-stage companies that don’t qualify for invoice discounting, as long as they can prove they have the in-house capacity to chase outstanding payments. They can also offer a more cost-effective option for companies with lots of small customers.