Embedded Invoice Financing vs Factoring: Aria’s Perspective

In the dynamic realm of online marketplaces, B2B platforms, and specialised SaaS, are you in pursuit of liquidity to fuel business growth, all while maintaining agility? While many lean towards traditional factoring methods, the digital age has contemporary, flexible and advantageous alternatives.

Delve into our comprehensive 7-point comparison that underscores the perks of embedded invoice financing over traditional factoring.

1 – Embedded Invoice Financing, a Financing Solution Seamlessly Integrated Into Your Processes

Embedded invoice financing is designed to seamlessly integrate with your online applications. By offering users an intermediation platform with lightning-fast payments for their services, you’re not only enhancing the service itself but also solidifying user loyalty, boosting your intermediary role, and ultimately fortifying your business. This type of financing evolves into a lasting element of your service package.

On the other hand, factoring predominantly resides within the administrative realm, tied to a company’s finance department. It lacks direct ties to user interactions on platforms or marketplaces. Each client’s approval is a prerequisite, leading to long delays.

2 – Invoice Financing In-App: Managing Unpaid Invoice Risks

Traditional factoring companies offer a variety of contract options, all aimed at mitigating the financial risks associated with unpaid invoices. Typically, they establish guarantee funds and deduct a small percentage from each financed invoice. Additionally, they often recommend credit insurance and tend to favour clients with specific insurance coverage.

Conversely, fintechs providing in-app invoice financing have the potential to advance up to 100% of the required liquidity. They willingly shoulder the recovery risk. While this is factored into the overall financial cost, it ensures you receive the full funds. In the unfortunate event of a client going bankrupt, the responsibility for potential financial loss shifts to the embedded invoice financing entity.

3 – Ensuring Gentle Invoice Recovery: A New Approach

Opting for traditional factoring can sometimes disrupt your B2B client relationships. In a typical client-notified factoring arrangement, the financing team steps in to resolve any invoice issues, potentially creating a disconnect with your clients. This approach might not align with your business goals.

On the other hand, fintechs that offer API-integrated invoice financing operate differently. When there’s a payment hiccup, they collaborate with you—the person who knows the client best. Together, you strategise the best approach to ensure prompt invoice payments. Ultimately, these fintechs are invested in seeing your sales thrive, which means maintaining strong and seamless business relationships.

4 – Decoding the True Costs: Factoring vs. Embedded Financing

Determining the total cost of factoring can be tricky. You might overlook some elements. However, with embedded invoice financing, the expenses tied to every invoice are crystal clear.

4.1 – Embedded Invoice Financing vs. Factoring: Greater Transparency in the Fee Structure

Deferred payment solutions charge a commission based on the advanced amount in invoice financing. This rate fluctuates depending on factors such as invoice volume and assumed risk, as well as the loan duration or financial advance. The cost structure remains straightforward, consisting solely of these charges.

In contrast, traditional factoring can include:

• Processing fees for certain operations
• A factoring commission based on the invoiced amount, irrespective of the actual liquidity requirement
• A finance commission covering the period between the financial advance and the invoice due dates
• Not to forget the financial cost associated with the guarantee fund, which is frozen and not transferred to the client

4.2 – Costs Tailored to Financing Needs

In most factoring arrangements, all pending invoices are handed over, leading to costs based on all sales.

Embedded invoice financing, on the other hand, only charges you for the invoices you choose to finance. It’s flexible, and often, it’s easier on the pocket.

5 – Sending the Right Financial Signals With Embedded Invoice Financing

Incorporating embedded finance into your operations is a move that won’t catch your business partners off guard. In fact, having API-integrated finance within an app is seen as a bonus. Partners utilising such platforms benefit from quicker payments, which means a steady cash flow.

On the flip side, factoring can sometimes tarnish a company’s reputation. Businesses opting for this financing method may face suspicions of financial instability, leading clients to question their reliability and the consistency of their service or product delivery.

6 – Driving B2B Sales Growth Through Instant Payments

While factoring primarily revolves around client credit, embedded invoice financing offers something extra—it integrates instant payments seamlessly into the user experience.

Consider freelancers as a prime example. With embedded finance, they can swiftly receive payments for their invoices, simplifying their financial management. Happy freelancers stick around, allowing you to expand your business and reduce churn. In a nutshell, harnessing embedded finance can be a powerful catalyst for your company’s growth.

Use case: Increase your B2B marketplace’s business volume with Aria’s instant invoice financing

• You are: a B2B marketplace looking to boost your business volume (GMV) and enhance seller loyalty.
• Use case: Let’s consider a freelance marketplace. Seller “A” provides a service to buyer “B” and submits an invoice. Instead of waiting up to 60 days for payment, “A” opts for the instant payment option offered by Aria on your platform. Aria finances the invoice and pays “A” instantly. This enhances satisfaction and loyalty on your platform. As for seller “A”, they can focus on their tasks, manage daily expenses, and reduce administrative burdens. The result: a significantly improved experience for freelancers on the marketplace.
• Benefits:
  • Competitive advantage: Strengthen your platform’s appeal and improve supplier acquisition by offering instant payments.
  • Supplier retention: Foster seller loyalty and reduce churn rates by eliminating payment delays.
  • Increased GMV: Boost your revenue by increasing transaction volume (in size and quantity).
  • Integration: Simply integrate this value-added service into your platform using Aria’s user-friendly API. This addition doesn’t require a substantial system overhaul.

7 – Aria: Leading the Revolution in Invoice Financing

Aria is at the forefront of revolutionising invoice financing. Our API-driven platform enables instant financing for invoices, allowing you to secure payments well before their due dates—all without depleting your cash reserves. With these advances, you can promptly settle supplier invoices and maintain a stellar record of timely payments.

Our solution offers streamlined embedded invoice financing solution, supported by clear and up-to-date documentation. This simplicity makes API integration a breeze, earning the approval of your DevOps team without disrupting their ongoing or future projects.

In the showdown between embedded finance invoicing versus factoring, there’s a clear winner. With its numerous advantages, isn’t it time to reconsider deferred payment solutions? In the world of B2B, speed is essential.