Working out the best financial solution for your business when it is suffering from cash flow problems is key to regaining control of the situation. When there are so many different options out to consider, the whole process can be particularly challenging.
Finding yourself in a situation where cash flow has become an issue can be a difficult thing to come to terms with, but there are a number of options out there to help you. These solutions can ensure that you recover from the issue as quickly as possible and are able tokeep your business operating through the trickier times.
What is flexible invoice discounting?
As is the case with factoring, invoice discounting is a method of borrowing short-term against the value of any outstanding invoices that you may have. It is usedas a means of improving the overall working capital and cash flowof your business.
Where invoice discounting is concerned, you remain in control and have responsibility for your sales ledger and for the chasing of any invoices that have not been paid, meaning that your loan remains completely confidential, and your customers will not be aware of the fact that you are using a financial provider to help with your cash flow.
How does Flexible Invoice Discounting differ from traditional factoring?
Unlike with flexible invoice discounting, if you choose to use traditional factoring services, then your customers will be aware of the fact you are using a factoring process. This is because the factor takes on the responsibility for getting payment from your customers after providing you with the cash. Factoring firms also take on the responsibility for chasing late payments on your behalf.
Flexible invoice discounting allows you to stay in control of your business and finances. You are left to manage your ledger and collect any payments owed yourself, while traditional factoring services carry out that service on your behalf.
Invoice discounting is also usually cheaper than factoring. The fee paid to the lender is less as there is less management involved. Furthermore, there is much less risk to the business owner than would be the case with factoring. This is because factoring firm may charge high fees and penalties if one of your clients doesn’t pay the invoice.
Factoring offers customers a much higher chance of acceptance because of the fact that it is much less risky for lenders – it is the factoring firm who manage the collection process and credit control. Factoring can sometimes work in your benefit in the sense that it may help you to negotiate better terms with suppliers. On the other hand, it removes the relationship between the customer and your business and may impact on any professional relationships you have developed with your clients over the years.
Which is right for you?
Which of the two is a better option for you depends entirely on what type of business you are and what circumstances you find yourself in. For a short-term, cost-effective solution to your cash flow needs, then flexible invoice discounting provides control and management; you only have to use the service when you need it. However, for a high fee, a factoring firm could take the responsibility of chasing payments away from you.
Whatever your cash flow need may be, speaking to the team at GapCap can help you in finding the best solution to your difficulties – helping you regain control of your cash flow and payment terms.