Yes, invoice discounting is cheaper than factoring, this is due to when a factoring company buys an invoice, they are responsible for the collections process, where as discounting requires the borrower to collect the outstanding invoice payment.
Business users that are looking for this type of finance need to have an understanding of what services they are paying for in both scenarios.
Is invoice discounting expensive?
No, invoice discounting is not expensive, and carriers many benefits for a business. It provides a low cost funding solution against your outstanding unpaid invoices. Typically it is a confidential facility although some lenders may insist that it is a disclosed facility. With disclosed invoice discounting, there is an assignment notice on your invoices which notifies your customer of the finance companies involvement.
Is invoice discounting more important than factoring?
Invoice discounting is more important than factoring if as a business you do not wish for your clients to know you are using a third party finance provider.
Some businesses do not wish for their clients to know that they are funding their invoices with a discounter, this can be for many reasons. Even though there is a ban on assignment clause is now illegal some business still enforce it, so invoice discounting is a way around this, hence why it is more important than factoring.
Is invoice discounting safe?
Yes, invoice discounting is safe and free from risk, a lender will advance you money against your unpaid invoices, and as a borrower you will be responsible to chase your clients for payment.
Discounting is one of the safest types of lending for any business, it brings minimal risk to a borrower as the risk is placed on the lender.
Read more: Invoice discounting vs invoice factoring