This is a question we get asked all the time at FindmeaFactor, so we thought that it would be a worth a quick note about this on our blog.
Firstly, all of these are business finance facilities that provide companies access to up fornt cash from customer invoices, usually within 24 hours of the company raising an invoice. Cash flow is the life blood of any business, so ensuring you have a steady cash flow is key to delivering the right environment for growth.
The basics here provide you some ideas on what the differences are between CID, Factoring and DID, as there are some major differences. Bear in mind though, there are also differences within the factoring companies themselves, so seeking help in selecting the right provider for your business is also a critical decision.
In this version of the cash flow facility the factoring finance company will take control of the whole process - from taking control of your sales ledger, to managing credit control and late payment, and processing invoice payments - the factoring company will be visible throughout the process and may even have their logo on your invoices or other documentation.
Within factoring there can be two versions of an agreement on fees paybale to the finance company; a fixed fee or a percentage on the amount of invoices.
Disclosed Invoice Discounting:
With this facility the company will retain control of the sales ledger and invoice process, however the businesses client's may become aware of the involvement of a 3rd party discounter (the finance company) due if they become involved in chasing invoice payments/late payment as the discounter will be the party that receives payment from the customer who has been invoiced. With 90% of the invoice paid to the company by the discounter once the invoice has been sent to the customer, only the balance of the invoice payment is due, minus any agreed fees, after the discounter receives the customer's invoice payment.
Confidential Invoice Discounting:
This is a process where the discounter's (the finance company) involvement in the business is not disclosed to any customers. However, in most cases the discounter will require evidence that the business has very strong sales ledger and credit controls in place to ensure timely customer payment and good management of customer credit. There may be a trust account created where the customer pays the invoice monies to, unaware of the account owner, but this allows the discounter to have visibility on payments made, as they will have provide (in most cases) up to 90% of the invoice payment to you in advance.
The above are the very basics and as mentioned earlier, there are a number of other issues to take into consideration. It is beneficial to speak to a specialist who can provide you background knowledge on the process and additional issues you should be aware of. For more information on the above please see - Confidential Invoice Discounting, Invoice Discounting and Factoring pages on our website, or contact us directly for a no obligation discussion with our team.