Small business invoice factoring vs financing: which one is for you?

Small business invoice factoring and debt financing are two different things – we know, it’s confusing. But we’re here to simplify things for you. We’ll get into the specifics in a short while, but here’s what you need to know right off the bat: under the right conditions, these short-term business financing models can be extremely beneficial and effective for small businesses. 

Why? Speed. And, when you choose the right financing partner, simplicity. 

With both debt factoring and debt financing, a business is essentially unlocking the value of unpaid invoices to gain instant access to capital instead of waiting for customers to settle their accounts before cash starts flowing again. We don’t need to explain to SMEs how vital constant cash flow is for the successful operation of a business, not to mention the ability to capitalise on time-sensitive growth opportunities. Knowing the different advantages of invoice factoring and invoice financing will help you make a decision that best suits your circumstances. 

So – let’s get stuck in, shall we? 

What is invoice factoring? 

In financial terms, factoring is a financial transaction in which a business sells its accounts receivable to a finance provider, normally at a discount (at anywhere between 20-30%) plus a factoring fee. The finance provider also becomes responsible for collecting payments from the business’s customers. In return, the business receives immediate capital to meet short-term liquidity needs. 

Invoice factoring can be a great solution for small businesses without large assets to offer as security on other types of business funding. Many traditional lenders require collateral on a business loan – that can look like anything from property to equipment, assets that most SMEs don’t typically have oodles of. 

But one asset that all small businesses do have to offer is their accounts receivable. Invoice factoring is essentially selling this asset to a finance provider in exchange for capital.  Although the business exchanges some profit in return for the advance, they’re buying instant access to capital when they need it. 

Okay, I think I get it. What’s the difference between invoice factoring and invoice financing? 

In both financing models, the accounts receivable or unpaid invoices represent the asset which is being offered as collateral. But, invoice financing differs from invoice factoring in two significant ways: 

• Invoice factoring entails selling the asset, whereas invoice financing entails borrowing against unpaid invoices – in this way, invoice financing is much more akin to a traditional business loan or line of credit than invoice factoring 
• With invoice financing, the business retains control of the sales ledger as well as the collection of payment from the customer – this may result in more preferable outcomes for customer relationships 

Like any business funding solution, using debt financing responsibly can unlock significant growth opportunities. Here are some more pros of invoice financing:

• Resolves cash flow challenges instantly instead of having to wait for customers to pay their accounts; for startups and businesses on a tight budget, this can be a convenient solution 
• It’s really fast – funding is disbursed in a matter of days instead of weeks or months
• If you have healthy and reliable accounts with customers who pay promptly, it can be an extremely cost-effective way to access business funding 
• It’s more accessible than traditional business funding, requiring far fewer qualifications 

Basically, invoice financing gives a bit more control and discretion to the business than invoice factoring. Nevertheless, invoice financing is not a one-size-fits-all approach. At the end of the day, invoice financing is a business finance decision that shouldn’t be undertaken lightly. The real solution lies in finding an invoice finance provider who can offer even flexibility and simplicity. 

What does invoice financing look like with Bridgement? 

Bridgement’s Invoice Financing product is a revolving credit facility which grants businesses access to advances up to the value of R5 million on unpaid invoices. As we explained earlier, you’re essentially liquidating your accounts receivable into working capital that you can access immediately. 

Invoice financing is not a new idea. But, we’ve taken the best parts of it and simplified the rest to deliver a financial product which is efficient and convenient for South African SMEs. Welcome to simple, fast, and flexible invoice finance online. 

What’s different about Bridgement’s invoice financing model? 

We hoped you’d ask. Here’s a rundown of the key benefits of using Bridgement’s Invoice Financing to unlock the value of your unpaid invoices: 

Value for money 

When you opt for invoice financing with Bridgement, you’ll receive 100% of the value of your unpaid invoices instead of the usual 70-80%. That means more capital in less time. 

Spot financing for tight spots

Bridgement is flexible enough to advance funds on invoices as low as R10 000. We also accept single invoices instead of entering into a locked-in agreement on all accounts receivable. It’s an ideal financing solution for small businesses in search of speed and flexibility. 

Discretion and agency: it’s just good business  

Your business is your business. Our transactions are completely undisclosed, which means that invoiced customers will not be made aware of the invoice financing. You will retain full control of your business relationships and continue to collect payments from your customers. 

One advance = one fee  

No application fee. 

No monthly fees. 

No termination fees. 

Just one, simple, transparent fee to cover the cost of finance. 

Like all of our finance solutions, the cost of our Invoice Financing service comes at a single, straightforward fee calculated according to a few factors. You can use our free-to-use pricing calculator to get a sense of what your rate will look like. 

Super fast, super simple  

Invoice financing is already an efficient way to unlock working capital that’s tied up in unpaid invoices. Because Bridgement is 100% paperless and online, our Invoice Financing solution is that much faster and that much simpler. 

How it works 

First, you’ll need to log into your Bridgement facility. Don’t have one yet? Apply here. Once you’re logged into your Bridgement dashboard, follow three simple steps to turn accounts receivable into funds received: 

1. Select an invoice – you’ll be able to see which ones are available for an advance from your Bridgement dashboard. Select one or many (we’re flexible like that) by clicking “Get Paid”. 
2. Review your fee and repayment schedule – you won’t sign up for anything that you don’t already know about. Once you’ve accepted the terms, the funds will be sent your way pronto. 
3. Pay us back over 12 months or settle early at any stage and get rewarded with a discount on the outstanding advance fee. We don’t do early settlement penalties around here. 

Voila. Instant working capital. With the funds you’ve liquidated from your unpaid invoices, your business can resolve cash flow challenges, stay competitive, and seize opportunities by accepting larger contracts with longer repayment terms. 

Why invoice financing is a worthwhile financing solution for small businesses 

Plenty of South African SMEs possess neither a long credit history nor substantial assets. Furthermore, securing business funding from traditional lenders can take months. Bridgement offers small businesses a convenient, fast, and flexible way to access working capital without the limiting requirements or the collateral often associated with traditional business funding.  

Your business shouldn’t have to suffer cash flow pressure because of slow-paying customers. Bridgement’s Invoice Finance can relieve that pressure. No application fee, and no lock-in period. Just innovative finance solutions, pure and simple.