Invoice Finance UAE – Factoring & Discounting from TFG

Last updated on 07 Aug 2024

18 Oct 2016 . 1 min read

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Mark Abrams

Mark heads up the trade finance offering at TFG where his team focuses on bringing in alternative structured finance to international trading companies.

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UAE Invoice Finance

Welcome to TFG’s UAE invoice and receivables finance hub. Find out how our team can help your UAE-based company unlock working capital from domestic and international invoices, on both a recourse and non-recourse basis. Alternatively, learn more about the different types of invoice finance: discounting and factoring, through our latest research, information and insights, right here, in our receivables finance hub.

What is invoice finance?

Invoice finance is a common form of business finance where funds are advanced against unpaid invoices prior to customer payment. Invoice finance houses include banks, alternative investment providers and private lenders, used by businesses who trade both domestically and globally. There are two types of invoice financing methods; discounting and factoring.

How can invoice finance benefit my business?

The invoice financier will sometimes take on the responsibility to look after your sales ledger which means the business owner can have more time to focus on the business
An invoice financier will conduct due diligence (including credit checks) on customers, which reduces the risk of not receiving funding
Invoice discounting can be done on a confidential arrangement, which means that your customers will not know that you’re using a finance house; this can help protect your reputation
Invoice finance allows you to maintain a good relationship with your customers, as you can fulfill larger orders on time without worrying about cash flow and working capital problems

Diagram: How invoice finance (receivables purchase) works

How can we help?

The TFG’s UAE invoice and receivables finance team work with the key decision-makers at 270+ banks, funds and alternative lenders globally, assisting companies in accessing factoring and discounting facilities.

Our team are here to help you scale up to take advantage of both domestic and international opportunities. We have product specialists, from commodities to finished goods.

Often the financing solution that is required can be complicated, and our job is to help you find the appropriate invoice finance solutions for your business.

Read more about Trade Finance Global and our UAE team.

If you have an invoice finance or receivables enquiry, please use the contact form below.

Finance Queries:

uae.team@tradefinanceglobal.com

trade.team@tradefinanceglobal.com

Partnership Queries:

introducers@tradefinanceglobal.com

Find out more about partnering with us here.

Want to learn more about Invoice Finance?

You’ve come to the right place. Here you can find our latest UAE features, receivables research, and trending articles in the world of invoice finance.

Sit back, and catch up with the latest thought leadership and interviews from the region, listen to podcasts and digest the top stories in invoice and receivables finance right below.

Invoice Finance for SMEs

How to use Invoice Financing for your Small Business

Invoice Factoring versus Invoice Discounting

How to use Invoice Financing for your Small Business

Invoice Factoring versus Invoice Discounting

What is the difference between invoice factoring and invoice discounting?

Recourse or Non-Recourse Factoring?

What is the difference between recourse factoring and non recourse factoring?

Bill Discounting and Factoring

What is bill discounting and how does it differ from factoring?

FAQ

What’s the difference between invoice discounting and invoice factoring?

Invoice finance is a type of receivables finance, which includes factoring and discounting.

Factoring is present when a business assigns their invoices to a third party and the factoring company has full visibility of the sales ledger and will collect the debts when due.

The customer has knowledge that the invoices have been factored. (This is the typical route a lot of funders offer, however – some can offer Confidential Factoring)
Factoring gives businesses up to 90% pre-payment against submitted invoices
This enables improved cashflow, and reduces the need to wait for payment
The company may receive their funds up to two days after invoices are sent out. Many factoring companies will offer to send money same day (TT Payment, usually carries a charge) or by BACS (Free)
A business can choose a ‘selective’ factoring or invoice discounting facility, dependent on the funder.

Typically, with Invoice Discounting, the borrower will have more control over their ledger. Again – like factoring, there is the option to do this on a completely confidential basis.

Invoice discounting is an alternative way of drawing money against the invoices of a business
The business retains control over the administration of their sales ledger
Invoice discounting usually involves a company reconciling with their invoice financier monthly
With factoring – each individual invoice is uploaded – with Invoice Discounting, a bulk figure is uploaded and then drawn down against with the monthly reconciliations showing where money is allotted to
Under a selective facility a business can opt to factor (i.e. lend) or invoice discount just some of the submitted invoices
A selective facility is a good option if a business needs a certain amount of cashflow guaranteed each month or if one or two customers are good payers.

The main difference between factoring and invoice discounting is that with factoring, a funder will have full visibility of your sales ledger and maintain this by chasing debts on your behalf. Invoice discounting on the other hand, allows you to keep your credit control in house but as we already discussed, it would require a monthly reconciliation with the invoice financier. Naturally, management fees for invoice discounting are usually a lot lower, however a company must demonstrate they have the correct procedures in place to support an Invoice Discounting facility.

What is factoring?

Factoring solutions offer the seller of a receivable a wider service than just the advance of funds to shorten its cash conversion cycle as the entity buying the receivable will also usually take on the responsibility of collecting the debt.

Factoring can take several forms. For example, a factor may agree, subject to limits, to buy the whole of a seller’s receivables. This is known as whole turn-over factoring. Conversely, a factor may select which invoices he wishes to buy. It can be with or without recourse to the seller and may or may not be notified to the buyer or obligor.

The vast majority of factoring is domestic and individual invoices are often of a low value. Cross-border factoring is possible using the two-factor system. One factor is in the buyer’s country (known as the ‘Import Factor’) and the other in the seller’s country (known as the ‘Export Factor’). The two Factors establish a contractual or correspondent relationship to service the buyer and the seller respectively under which the Import Factor in effect, guarantees the receipt of funds from the importer and remits payment to the Export Factor. Typically, the two factors use an established framework such as the General Rules for International Factoring (GRIF), provided by FCI. Read more about factoring here.

What is invoice discounting?

Invoice discounting solutions tend to focus on shortening a seller’s cash conversion cycle, as opposed to encompassing debt management and collection aspects. The degree of disclosure to the debtor under this type of facility varies, ranging from full disclosure to no-disclosure, depending on the level of comfort taken by the purchaser of the receivables over the nature and standing of the seller. In most cases, the greater the control the financing entity/purchaser of the receivables manages to attain over the process, the better the discounting conditions offered.

An invoice discounting facility without disclosure to the debtor will grant the seller of the receivables full confidentiality, and therefore avoid reputational hazards. Most invoice discounting is without recourse to the seller so as to ensure de-recognition of the receivables from the seller’s balance sheet (so-called “true sale”) but recourse is normally retained for commercial dispute e.g. where the buyer refuses to pay because the goods or service are defective. Read more about invoice discounting here.

What’s the difference between invoice discounting and invoice factoring?

Invoice finance is a type of receivables finance, which includes factoring and discounting.

Factoring is present when a business assigns their invoices to a third party and the factoring company has full visibility of the sales ledger and will collect the debts when due.

The customer has knowledge that the invoices have been factored. (This is the typical route a lot of funders offer, however – some can offer Confidential Factoring)
Factoring gives businesses up to 90% pre-payment against submitted invoices
This enables improved cashflow, and reduces the need to wait for payment
The company may receive their funds up to two days after invoices are sent out. Many factoring companies will offer to send money same day (TT Payment, usually carries a charge) or by BACS (Free)
A business can choose a ‘selective’ factoring or invoice discounting facility, dependent on the funder.

Typically, with Invoice Discounting, the borrower will have more control over their ledger. Again – like factoring, there is the option to do this on a completely confidential basis.

Invoice discounting is an alternative way of drawing money against the invoices of a business
The business retains control over the administration of their sales ledger
Invoice discounting usually involves a company reconciling with their invoice financier monthly
With factoring – each individual invoice is uploaded – with Invoice Discounting, a bulk figure is uploaded and then drawn down against with the monthly reconciliations showing where money is allotted to
Under a selective facility a business can opt to factor (i.e. lend) or invoice discount just some of the submitted invoices
A selective facility is a good option if a business needs a certain amount of cashflow guaranteed each month or if one or two customers are good payers.