Factoring and Invoice Discounting, what is the difference?

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Commonly used by recruitment businesses invoice discounting and factoring are very similar. They are both methods of invoice finance, but the differences usually comes down to the ways in which the accounts and collection are run. It is often the larger and more established recruitment businesses that use invoice discounting over factoring (however, this is not always the case).

Factoring and Invoice Discounting both provide recruitment businesses with finance against unpaid approved submitted invoices, but below we have tried to simplify the differences between the two.

(Please note: we have compared funding only facilities, without payroll and back office solutions – find out more in our previous blog about payroll and back office funding for recruitment businesses.)

 

 

FACTORING:	INVOICE DISCOUNTING:
1.  The factoring company will control the sales ledger and collect debts	1. The recruitment business retains control over the administration of their sales ledger
2. The factoring company will take responsibility for the collection of all the invoices	2. The recruitment business takes on the full responsibility for the collection of invoices
3. The recruitment businesses client will be aware of the fact that the invoices have been factored	3. The recruitment businesses client will not be aware of the fact that the invoices have been discounted
4. The customer pays the factoring company direct (some factoring facilities come without credit control)	4. The customer pays the company as normal  (through a trust account with the funding provider)
5. The recruitment business will sell and completely assign ALL rights to the submitted invoice	5. there is no printed “notice of assignment” upon each invoice issued
6. Can give a recruitment business up to 95% payment (normally 90%) for an invoice often within hours of it being raised	6. The funder will audit the recruitment business at the start and periodically to determine the invoice advance percentage (normally 90%, sometimes less). Like factoring, the money can be available in a matter of hours of uploading invoice amounts

 

Please note that not all factoring facilities have to include credit control, there are sometimes options for factoring without credit control (CHOCCS – Client Handles Own Credit Control), but the facility is still disclosed with the funders assignment.

Compare Recruitment Factoring is a specialist service which allows recruitment businesses to get the right product and best costings for a facility, by comparing the majority of funding providers and guiding businesses through the process from start to finish. 

If you would like to find out more, please feel free to call us on 01600 735003 or email hello@c-r-f.co.uk.