What is alternative finance and how does it work?

There are a few further types of finance you can consider: factoring and invoice discounting, and asset financing and leasing. We’ve explained both alternative types here for you.

Both factoring and invoice discounting improve cash flow, which may be critical on a large customer order with late payment. With factoring, aspects of accounting administration can be outsourced, freeing up staff, but this can have negative effects on customers if poorly handled by the finance provider – this isn’t an issue with invoice discounting, as your customer is not exposed to the arrangement. In both instances, the financer takes on the debt, paying you the majority of the owed amount. Once the customer settles the debt, the remainder is paid minus the interest charged and fees. Factoring and invoice discounting are more applicable to commercial/business to business debts, not retail/consumer facing debts.

Asset finance comes in many varieties and represents a loan to the business for the purchase of new assets, such as tools, technology, equipment and vehicles. With leasing, the asset isn’t typically owned the business. Leasing enables access to latest technology and equipment, but without the cost implications if the equipment breaks down.

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