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The difference between invoice factoring and invoice financing

Written by:
Taylor Marsden
Published on:
November 12, 2019

Maintaining your business’ healthy cash flow might feel easier if you didn’t have to deal with outside forces, but when it comes to sales, your customers have just as much power over that flow as you do. And it makes collecting payment a huge roadblock for most.

You’re paying staff, sorting out your bills and settling outstanding payments on a monthly basis - so it’s crucial that customers pay what you’re owed and on schedule. 

In reality, though, this doesn’t always happen. 

When your business customers run into their own roadblocks and can’t make expected payments, you need a means of sustaining stable cash flow regardless of their circumstances. 

Invoice financing and invoice factoring are two helpful options to consider when tackling the delayed payment issue, but they offer significant differences worth exploring.

What is Invoice Financing?

When you opt to offer Invoice Financing, Ario’s network of lending partners provides your customers with access to credit to pay the full amount owed on time. You’ll receive 100% of your payment within 24 hours.

Once the outstanding invoice has been paid, your customers choose their repayment terms and pay back the lender the amount they were initially loaned (with the addition of any interest or fees).

Sounds easy? It is! 

By using Invoice Financing, your business can keep running smoothly month after month without any extra effort or cost to you.  

It also takes the pressure off of chasing down your customers, allowing you the ability to maintain a friendly and rewarding relationship with the people you do business with (read: no more awkward conversations about money).

What is Invoice Factoring?

When it comes to payment collection, invoice factoring differs quite a bit. An invoice factor (think: banking institution) actually purchases your invoices, taking over the process from you when it comes to collecting the owed amount from customers. 

The factor initially pays you a percentage of the total amount, then sends over the rest of what you’re owed after all payments have been received - minus their own fees. In short, when you factor you settle for less than you’re owed. 

In this scenario, the factor that purchases your invoices is entirely responsible for chasing down payments while your business still receives some form of payment, albeit only partially.

However, because invoice factoring is so impersonal and out of your control, it’s more likely to jeopardize customer relationships, and it could even signal that your business is struggling financially. In a world where perception is key, this is a risky road to travel.

Plus, you’re not guaranteed to be paid in full or on time, ever.

Invoice Financing with Ario

Invoice Financing through Ario ensures you get paid in full but also encourages both a healthy cash flow and healthy customer relations. 

Ario’s tool helps you to provide immediate access to credit for your customers, allowing them to settle their owed amounts instantly. They can also choose flexible terms that suit them and manage their own payments online with easy repayment options. 

Empowering customers with the funds they need helps to nurture positive relationships between yourself and the people you do business with, ultimately encouraging customer loyalty and potentially leading to an increase in your sales.

Find out more about how to get started with Invoice Financing today.

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