A Simple Guide to Invoice Finance & Factoring for Borrowers

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Demystifying Receivable Finance Terms: Easy Explanations for Every Borrower

When exploring ways to improve cash flow, especially for SMEs, exporters, and suppliers, you'll encounter terms like supply chain finance, trade finance, and various types of invoice factoring. This guide breaks them down in plain language, shows how they differ, and helps you figure out which financing service best suits your business.

1. Trade Finance

Definition: The umbrella term for tools, such as letters of credit and guarantees, that help you trade internationally by managing payment risk and freeing up capital.

In everyday words: It’s the safety net that ensures you get paid when working with overseas customers.

2. Supply Chain Finance (Reverse Factoring)

Definition: A buyer-led system where suppliers get paid early by a financier, and the buyer repays the amount at a later date. The cost is based on the buyer’s credit rating.

Simple explanation: Imagine your large customer arranges funding so you get paid sooner—without them paying themselves right away.

3. Invoice Financing

Definition: You borrow money using your invoices as collateral, retain control of collecting payments, and repay the loan with interest.

Plain English: Think of invoice financing as a short-term loan… where the lender uses what your customers owe you as security.

4. Factoring

Definition: You sell your unpaid invoices to a factor for immediate cash (usually 80–90%). The factor collects the payment from your customer, deducts their fees, and sends you the remaining balance.

Simply put: It’s like selling your invoices at a discount to get money now while someone else handles chasing the payment.

5. Domestic vs. Export (International) Factoring

• Domestic Factoring: Applies to invoices from local customers, with simpler legal and currency rules.
• Export Factoring: Designed for international buyers, factoring in currency exchange, cross-border collections, and legal complexities.

Layman’s view: Local factoring is straightforward. Export factoring handles the headaches of overseas customers, so you don’t have to.

How They Differ in Simple Ways

• Who initiates it?

• Supplier: Factoring and invoice financing
• Buyer: Supply chain finance

• Who collects payments?

• You: Invoice financing
• Factor: Factoring (export or domestic)

• Is it a loan or a sale?

• Loan/borrowing: Invoice financing
• Sale: Invoice factoring
• Finance based on buyer credit: Supply chain finance

• Is it local or international?

• Local: Domestic factoring
• Global: Export factoring

Why It Matters for Your Business

• Speed: Factoring and invoice financing unlock cash fast.
• Control: Invoice financing keeps collections in your hands.
• Risk protection: Export factoring and non-recourse factoring shield you from bad debts.
• Cost efficiency: Supply chain finance often costs less—as buyers get better rates than suppliers

Which Option Fits You?

✅ Choose invoice financing if you want a quick loan tied to invoices without giving up control.

✅ Choose invoice factoring if you're okay selling invoices and want someone else to handle collections—and prefer instant cash.

✅ Choose non-recourse/export factoring if you sell abroad and worry about unpaid foreign invoices.

✅ Choose supply chain finance if your buyer is large, reliable, and can help you access cheaper funds.

Ready to Grow with Confidence?

👉 Apply now on Factorglobe to find the solution that fits your cash-flow needs and unlock immediate working capital.

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