- 11 Jan
Sales Ledger Finance Versus Factoring
Sales ledger finance and factoring are two types of receivables finance (also sometimes called invoice finance), whereby the core service provided is that a prepayment is given against outstanding accounts receivable, that are owed to a business.
Whilst this funding is nearly always part of a factoring service, there are some "service only" facilities that provide only the credit control without prepayments.
Sales Ledger Finance Compared With Factoring
Sales ledger finance is often used to describe a service whereby you only receive those prepayments (although many parties refer to this as "invoice discounting", using the terms interchangeably), whereas factoring is normally applied to a service where there is also a credit control service provided, in addition to prepayments against unpaid invoices. Sales ledger management is often also listed as a service under a factoring facility. That means handling the task of maintaining a full sales ledger (sales invoice, credit notes and payments applied to debtor accounts). This ledger is used as the basis against which to provide funding.
However, some people use the term "sales ledger finance" to describe any whole turnover receivables financing product i.e. finance against your sales ledger (as opposed to just selected invoice - which is know as selective invoice finance or spot). This indicates the minefield of technical terms that are used within the receivables financing sector. Different providers will title their services differently such that an important part of the role of a broker is understanding, and explaining, these differences between providers.
Another key difference between sales ledger finance and factoring is that factoring delivers a lower risk product to the funder, hence they tend to be more liberal in terms of who they will offer it to. Even companies that are in financial trouble, or facing insolvency may be able to access factoring in order to improve their cash flow position. There is often a premium charged to offer the credit control element of a factoring service, however, in some cases the gap between the cost of invoice discounting and factoring can be less than you might imagine, making the addition of the credit control service good value.
Explaining Invoice Financing
In our free guide to invoice financing (which has links to our guides to "types of invoice discounting" and "types of factoring", we set out, and explain, all the different styles of facility that you are likely to come across. Across those three documents there is a comprehensive list of the various terms that are used within our sector, although there are often brand names that are introduced to further complicate matters.
Getting Help Understanding And Comparing
If you need some simple help understanding what is available, and how sales ledger finance compares versus factoring, or other product names, it may be best to speak to Sean on 03330 113622 for a chat without any obligation.