Receivables finance is small capital businesses raise by unlocking the money tied up in invoices that are yet to be paid. This form of finance is more of an asset purchase than a lending deal because the capital released is raised by effectively ‘selling’ an invoice or the business’s entire debtor book. Businesses then pay a small fee to the finance provider for the service.
There are two types of receivables finance:
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Invoice discounting
A business chooses to ‘sell’ its invoices to a finance provider and receives the money upfront, rather than waiting 30 or 60 days for the customer to make the payment. The business is responsible for issuing the invoice to its customers as it normally would, and chasing the payment if necessary.
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Factoring
The main difference between factoring and invoice discounting is that the responsibility for the credit control function passes to the finance provider. For this reason, factoring is typically used by smaller companies, as they do not have to employ a specialist credit control team or spend time chasing payments or credit checking customers.
At Business Expert, companies can compare the cost of the UK’s receivables finance providers to find the best deal to free up the working capital they need to grow.