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Invoice finance and asset based lending are important cash flow solutions that have been used by many businesses for decades.  In this article, we will take a closer look at these two finance products. 

Invoice Finance (Factoring, Invoice Discounting)

This is a type of business finance that converts accounts receivable on your balance sheet into immediate working capital. You receive an advance of funds owed to you in outstanding invoices.

For example, your business has provided goods or services to your customer and issued a corresponding invoice on 30 day terms.  This means you will now have to wait 30 days to get paid. With Invoice Finance, you can sell this invoice to a finance provider and receive up to 90% of the invoice value upfront less a fee.  Upon verification, funds are usually transferred to your bank account within 24 hours. 

On the invoice due date, your customer will either continue to pay to your business bank account or directly to financier’s bank account, depending on the facility type.

Asset Based Lending

Asset based lending is designed to allow businesses to obtain funding against the value of their assets. This could be its inventory of raw or finished goods, accounts receivable or even its fixed assets like equipment and property.

The table below provides a summary of each of the mentioned finance products:

 

Invoice Finance

 
 FactoringInvoice DiscountingAsset Based Lending
Mid to long term funding needsYesYesYes
Requires business to business receivables onlyYesYesYes
Requires legal title to receivablesYesYesYes
Requires robust ‘in house’ ledger controlNoYesYes
How much advance can be expected.Up to 90% of the value of eligible invoices.Up to 90% of the value of outstanding balances from eligible debtors.Up to 90% of the market value of the eligible assets.
Do you collect money on my behalf?YesNoNo
Will your customer be aware of this arrangement?YesNoNo
Do I have protection from debtor insolvency both domestic and export?NoNoNo
Does funding increase working capital?YesYesYes
What kind of turnover is required?Any sizeAny sizeAny size as long as there is sufficient asset/collateral
What are the differences in pricing?Generally more expensive than Asset based lendingGenerally more expensive than Asset based lendingGenerally cheaper than invoice factoring and invoice discounting
How quick is the assessment / on-board process?FastFastSlowest

InvoiceInterchange offers online Invoice Discounting that is simple, flexible and fast. SMEs can select whole turnover invoice discounting or finance only the invoices you choose. When you get paid sooner, you can easily cover upfront costs, salaries or overheads. Talk to one of our team today to see how we can help you flexibly access working capital to grow your business.

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