Invoice finance comes wrapped in jargon that can make a simple idea sound risky. Two pairs of terms cause most of the confusion: disclosed vs confidential, and recourse vs non-recourse. Once you understand them, comparing facilities gets much easier.
Disclosed vs confidential
This is about whether your customers know you are using finance.
- Disclosed: your customer is told, and may be asked to pay the finance provider directly. Common with factoring.
- Confidential: your customer is not told, and you continue to collect as normal. Common with invoice discounting.
Many subcontractors worry that using finance signals weakness to a main contractor. Confidential arrangements avoid that entirely.
Recourse vs non-recourse
This is about who carries the risk if the customer never pays.
- Recourse: if the invoice is not paid, you repay the advance. Cheaper, because you keep the bad-debt risk.
- Non-recourse: the provider absorbs the loss if the customer fails, for a higher fee.
One more term: assignment
When you finance an invoice you usually assign the right to that payment to the provider. It is a routine legal step, but check your contract does not prohibit assignment, as some main-contractor terms do.
Putting it together
A facility is best judged on the full picture: disclosed or confidential, recourse or non-recourse, and the all-in cost. For the difference between the two main facility types, see invoice factoring vs invoice discounting.