Professional fee funding, factoring, invoice discounting, receivables finance, invoice financing, cash-flow finance… the list could go on.
It’s not hard to see why there’s confusion around financing options in the accounting world. But what do all of these different terms actually mean, and which one is best for your firm (if any)?
ONE OF THESE THINGS IS NOT LIKE THE OTHER
I’ll admit it – that was actually a trick question.
Because all but one of these terms is just a different name for a similar thing: debtor financing. In its simplest sense, this refers to a process of funding a business using its accounts receivable ledger as collateral. Factoring is sometimes considered “lending of last resort” as it’s often used in a cash flow crisis.
But “Professional Fee Funding”, or PFF, is the one term in the above list that entails something very different.
PFF is better conceptualised as an extra payment option for the clients of accountants. Clients who wish to choose between direct debit, credit card, or BPAY may also wish to choose between a single lump sum payment, or multiple installments.
PFF provides this option, and also pays the accountant’s invoice in full in a few business days – not because of a cash flow crisis, but to make life easier for the client and the firm.
Below are some of the other key differences between PFF and debtor financing.
1. NO DISCOUNTS
PFF allows an accountant to receive full payment for their invoices.
This is in contrast with debtor financing, where the accounts receivable ledger is financed at the accountant’s cost.
2. CLIENTS HAVE A CHOICE
PFF allows a firm to offer their clients the option to pay their invoice in monthly installments, should they wish.
This allows the client to feel in control and valued when they transact with their accountant.
It can also mean a ‘set and forget’ situation with clients who often pay late, according to Stacie Shaw of PKF: “Our interactions with these clients can be focused on their business, as it should be, rather than tainted with discussions about our invoicing.”
3. IT’S APPLIED SELECTIVELY
There’s no minimum usage of PFF, so an accountant can pick and choose which clients to offer it to – and then those clients can decide whether to use it or not.
According to Stacie, this is also ideal: “Choice for clients is paramount, there is no ‘one solution fits all’ when it comes to payment of invoices. The QuickFee funding for clients is also often at a more reasonable rate than alternatives available to them, such as an overdraft or credit card facility.” With debtor financing, on the other hand, the entire accounts receivable ledger is in the hands of the debtor, leaving accountants and their clients with no control.
Bruce Coombes, Director, Quickfee.