What is the difference between Invoice Discounting and Factoring?

Invoice Discounting and Factoring are both financing options that help businesses improve their cash flow by leveraging their accounts receivable. However, there are some key differences between the two: Invoice Discounting: - The business retains control over the sales ledger and collection of payments from customers. - The finance provider advances a certain percentage (usually up to 80%) of the invoice value to the business. - The business is responsible for managing credit control and chasing outstanding payments from customers. - The arrangement is typically confidential, meaning customers may not be aware of the involvement of a finance provider. Factoring: - The finance provider takes over the sales ledger, credit control, and collection of payments from customers. - The finance provider advances a certain percentage (usually up to 90%) of the invoice value to the business. - The finance provider handles credit control tasks, including chasing outstanding payments from customers. - The arrangement is disclosed to customers, as they are required to make payment directly to the finance provider. In summary, invoice discounting allows the business to retain control over credit control tasks, while factoring involves outsourcing these tasks to the finance provider.

Which is cheaper Invoice Discounting or Invoice Factoring?

Invoice discounting is generally cheaper compared to invoice factoring, because credit control is not included in the service. The trade off is that you carry the cost and the work of chasing payment yourself, so the saving is not the whole picture.

Is debt factoring the same as invoice factoring?

Yes. Debt factoring, invoice factoring and factoring all describe the same product: a facility where a funder advances against your unpaid invoices and takes over credit control and collections. Debt factoring is the term most often used in textbooks and business studies courses, while the finance industry itself usually says invoice factoring.

Which is better for a small business or start up?

Factoring, in most cases. Some funders have no minimum turnover and no minimum trading period for factoring, whereas invoice discounting usually requires around 12 months trading, higher turnover and an in house credit control function. Factoring also includes credit control, which is worth more to a business without a finance team than the fee difference costs.

Will my customers know I am using invoice finance?

With factoring, yes. The facility is disclosed and your customers pay the funder directly, although some lenders offer a white label or confidential factoring service. With invoice discounting the facility is confidential and your customers continue to pay you as normal.

Can I switch from factoring to invoice discounting later?

Yes, and many businesses do. Factoring is often the entry point, with a move to confidential discounting once turnover has grown, trading history is longer and an in house credit control function is in place. It is worth checking notice periods and any termination fee in your existing agreement before moving.

Invoice Discounting vs Factoring Debt UK

Last updated: September 19th, 2026

Lets look at the differences and compare Invoice Discounting vs Factoring for UK businesses.

They are both types of Invoice Finance and have different features, benefits and eligibility criteria. Bolton Business Finance is an independent invoice finance broker and we place both.

Written by Marcus Wright, owner and founder of Bolton Business Finance Ltd, in financial services since 2008 and a commercial finance broker since 2019. Last reviewed September 2026.

Get A Quote Call 0161 546 9128

The short version

The difference is who chases payment. With factoring the funder runs credit control and collects from your customers. With discounting you keep collections in house and the facility is confidential.
Factoring is disclosed to your customers. Discounting is not.
Both advance a similar percentage, typically 50% to 90% of invoice value, with funds available within 24 hours.
Discounting is cheaper because credit control is not included, but it has stricter entry criteria: usually 12 months or more trading, higher turnover and an in house credit control function.
Factoring has no minimum turnover with some funders and suits start ups, smaller businesses and those with adverse credit.
Both require B2B invoices. Neither works on consumer sales.
Debt factoring, invoice factoring and factoring all mean the same thing. So do invoice financing and invoice finance.

Invoice Discounting vs Factoring

Depending on your business, you may be able to choose between discounting and factoring when setting up a new invoice finance facility.

However it may be that you only qualify for one option or only one of the options fits with your business model or sector.

If you want to work out which facility is best for your circumstances, then continue reading below to see the differences.

Apply now or call us on 0161 546 9128

What Is The Difference Between Factoring And Invoice Discounting?

To put it simply, the main difference between debt factoring and discounting is who is responsible for collecting customer payments.

With Factoring customer invoicing and collections is done by the factoring company. With discounting you retain the customer collection process in house and funding is usually provided confidentially.

That means that discounting is usually more suited to larger businesses, who already have an accounts team that handles customer invoicing and payments collections.

This video covers the main differences in more detail.

Video: Invoice Discounting vs Invoice Factoring Explained

A Note On Terminology

This product is described several different ways and the overlapping names cause a lot of confusion. They mostly mean the same thing.

What the different terms actually mean
Term	What it means
Invoice finance	The umbrella term for any funding raised against unpaid invoices
Invoice financing	The same thing. Used interchangeably with invoice finance
Factoring	A type of invoice finance where the funder runs credit control and collects
Invoice factoring	The same as factoring
Debt factoring	Also the same. Common in textbooks and business studies courses
Invoice discounting	A type of invoice finance where you keep credit control, usually confidential
Receivables finance	Another umbrella term, more common in larger corporate lending

So the genuine comparison is factoring against discounting. Comparing factoring against invoice financing is comparing a type against the category it belongs to.

Side By Side Comparison Table Invoice Discounting vs Factoring

Lets line them up side by side to compare the differences.

Feature	Invoice Factoring	Invoice Discounting
Credit Control Included?	Yes – Credit control Included – Sales ledger is managed	No – Retain customer collections – Manage customer relationships
Is It Confidential?	No – Some lenders may offer a white label or confidential service	Yes – Facility is confidential and not disclosed to your customers
Who Sends The Invoice?	Varies By Factoring Company, normally you send it	You Continue To Invoice Your Clients As Normal
What Percentage Of The Invoice Can I Borrow?	50%-90% Standard Max 100% by exception	50%-90% Standard Max 100% by exception
Can You Add Bad Debt Protection?	Yes Additional Charges May Apply	Yes Additional Charges May Apply
How Quick Can I Access Funding For New Invoices?	Usually within 24 Hours of upload Invoice verification may be required	Usually within 24 Hours of uploading new ledger
What Is The Minimum Turnover Required?	None	Approx. £100k+ Per Annum
Suitable For Start Ups?	Yes No minimum trading period required	No Requires: -12 months trading – In house credit control function
Can You Finance A Single Invoice?	Yes	Yes
Can You Fund Overseas Export Invoices?	Yes	Yes
Which Is The Most Expensive?	Factoring is usually more expensive, as the factor is providing credit control	Discounting is usually less expensive as it does not include credit control
Can It Be Used With Consumer Invoices?	No They must be B2B	No They must be B2B
Advantages	Includes Credit Control Help Reduce Late Payments Suitable For New Start Ups Suitable For Bad Credit Long Term Cashflow Solution	Maintain Own Credit Control Confidential Suitable For Large Invoice Volume Suitable For Low Value Invoices Long Term Cash Flow
Disadvantages	Disclosed To Customers Invoices Require Verification Some Admin required May Need To Provide Evidence	Stricter Acceptance Criteria No Credit Control Included Daily or Weekly Upload of Invoices May Need To Provide Evidence
Is It Suitable For Companies In A CVA?	Yes	Yes Although Factoring may be preferred or mandatory with some banks & lenders

Table: Invoice Discounting vs Factoring

The table above is just for educational purposes, product features will vary between banks and other lenders.

Every business has its own unique set of circumstances and many lenders will consider each application on its own merits.

If you wish to get a Factoring or Discounting quote, please fill in the form below.

Factoring vs Invoice Financing: Are They The Same Thing?

Both Factoring and Invoice Financing can be referring to the same thing. However it is important to know the different types of Invoice Finance and Factoring available. Depending on your business, there may be more than one option available to you.

What Is Invoice Financing?

Invoice Finance is a type of commercial finance used by businesses to raise cash from their unpaid customer invoices. This could be on a one off basis or an ongoing revolving facility with the bank.

Banks and other alternative lenders will take a charge over a business’s customer invoices and make the cash available. This type of business finance is suitable for businesses that trade B2B and give their clients credit terms.

It can be used by new start up businesses and long established companies. Click here to find out more information about Invoice Finance.

Factoring & Other Types Of Invoice Financing

Factoring is a type of Invoice Finance predominantly used by smaller SMEs to release capital tied up in unpaid invoices. However there are other types of Invoice Finance such as:

Factoring
Discounting
Single Invoice Finance, also called spot factoring
Selective Invoice Finance
CHOCS, where the client handles own collections
Recruitment Finance, also called payroll finance
Construction Finance, funding applications for payment
Transport and haulage factoring

The different facility types will be suitable for different businesses. Important factors include sector, turnover, number of years trading, in house credit control function, clients and credit risk.

There is also a separate comparison worth understanding if you are weighing up how to fund equipment as well as cash flow: see factoring vs leasing.

Whoever chases the invoice, you can charge for the delay

The difference between the two products is largely about who runs credit control. Either way, where a business customer pays late you have a statutory right to interest at 8% above base rate plus a fixed sum per invoice, under the Late Payment of Commercial Debts (Interest) Act 1998, and it applies whether or not your terms mention it.

Our late payment interest calculator works out what you are owed across several invoices and drafts a letter you can send. On small regular invoices the fixed compensation is usually worth more than the interest, because it applies per invoice rather than per customer.

Factoring and Invoice Discounting FAQ

What is the difference between Invoice Discounting and Factoring?

Invoice Discounting and Factoring are both financing options that help businesses improve their cash flow by leveraging their accounts receivable. However, there are some key differences between the two:

Invoice Discounting:
– The business retains control over the sales ledger and collection of payments from customers.
– The finance provider advances a certain percentage (usually up to 80%) of the invoice value to the business.
– The business is responsible for managing credit control and chasing outstanding payments from customers.
– The arrangement is typically confidential, meaning customers may not be aware of the involvement of a finance provider.

Factoring:
– The finance provider takes over the sales ledger, credit control, and collection of payments from customers.
– The finance provider advances a certain percentage (usually up to 90%) of the invoice value to the business.
– The finance provider handles credit control tasks, including chasing outstanding payments from customers.
– The arrangement is disclosed to customers, as they are required to make payment directly to the finance provider.

In summary, invoice discounting allows the business to retain control over credit control tasks, while factoring involves outsourcing these tasks to the finance provider.
Which is cheaper Invoice Discounting or Invoice Factoring?

Invoice discounting is generally cheaper compared to invoice factoring, because credit control is not included in the service. The trade off is that you carry the cost and the work of chasing payment yourself, so the saving is not the whole picture.
Is debt factoring the same as invoice factoring?

Yes. Debt factoring, invoice factoring and factoring all describe the same product: a facility where a funder advances against your unpaid invoices and takes over credit control and collections. Debt factoring is the term most often used in textbooks and business studies courses, while the finance industry itself usually says invoice factoring.
Which is better for a small business or start up?

Factoring, in most cases. Some funders have no minimum turnover and no minimum trading period for factoring, whereas invoice discounting usually requires around 12 months trading, higher turnover and an in house credit control function. Factoring also includes credit control, which is worth more to a business without a finance team than the fee difference costs.
Will my customers know I am using invoice finance?

With factoring, yes. The facility is disclosed and your customers pay the funder directly, although some lenders offer a white label or confidential factoring service. With invoice discounting the facility is confidential and your customers continue to pay you as normal.
Can I switch from factoring to invoice discounting later?

Yes, and many businesses do. Factoring is often the entry point, with a move to confidential discounting once turnover has grown, trading history is longer and an in house credit control function is in place. It is worth checking notice periods and any termination fee in your existing agreement before moving.

Summary Invoice Discounting vs Factoring

In summary the size of your business is one of the biggest influencers on what type of invoice finance is suitable for you.

Smaller SME businesses and new start-ups may only be eligible for Debt Factoring facilities. This may be on a confidential or disclosed basis dependant on your business’s circumstances. Click here to read more about Invoice Factoring.

Larger and more established companies may opt for confidential discounting, to maintain a greater level of control over their ledger and customer relationships. Click here to read more about Invoice Discounting.

Either way both types of invoice finance can give you fast access to cash tied up in unpaid customer invoices. So if you trade business to business and offer credit terms to your customers, then it may be a funding solution worth considering. For what each facility actually costs, see the costs of factoring.

Apply For Factoring or Invoice Discounting Today

Compare both, then decide

Speak with an independent invoice finance expert to see what your options are. Send us your turnover, how long you have been trading, roughly how many customers you invoice and whether you have an in house credit control function, and we will come back with what is available on both. Free service, we do not charge any broker fees for invoice finance applications.

Call 0161 546 9128

About the author

Marcus Wright is the owner and founder of Bolton Business Finance Ltd. He has worked in financial services since 2008, beginning his career at Santander, and spent time on the lender side at an independent invoice finance provider before becoming a commercial finance broker in March 2019.

He founded Bolton Business Finance in 2020 to give businesses access to the whole lending market rather than one bank’s own product range. The firm is a member of the National Association of Commercial Finance Brokers and works with a panel of 135+ lenders.

Call 0161 546 9128.

Bolton Business Finance Ltd is an independent commercial finance brokerage, not a lender. We are not authorised by the Financial Conduct Authority and can only complete non-regulated introductions. All lending is for business purposes only. The comparison on this page describes general market practice as at September 2026 and is not a quote. Product features vary between lenders and every application is assessed on its own merits. Registered address: Westgate House, 1 Westgate Avenue, Bolton, Greater Manchester, BL1 4RF. Company number 12495909.

Simon Johnson

Simple, easy and professional. Listen to business requirement and found the perfect funding solution. Thank you...!

Ihsan Gungor

Great help and fast

Hassan Raza

Many Thanks Marcus for arranging funds for my business despite having several challenges on credit file.

Craig Barclay

Amazing service - Thank you Marcus first class

Shazad “Shaz” Khan

The service is undecrible. I had a lot of issue through other brookers but it has been dealt professionally by Marcus. The service i received is more then beyond expectations.

Gordon Angus

I can't recommend Bolton Business Finance Ltd highly enough. They were able to get us excellent terms and a higher loan amount than expected - far better than any other broker. Marcus was very friendly, helpful and supportive throughout the application and I will definitely use their services again.

Gerad Barclay

Exemplary Business Finance Service Bolton Business Finance and its MD Marcus Wright are professional and an example to others in the industry. Strongly recommended. Most business people searching for a business finance broker will have dealt with Estate Agents, Recruitment Agencies, or both. You know the types; recruitment “consultants” that try to palm you off with unsuitable candidates having doctored the CV to look great, or estate agents that assure you the enquirer is a “Cash Buyer” or in a fabulous position when in fact they have not even got an offer yet for their overpriced property. Many Business Finance Brokers are as above, probably worse. They work the numbers game of collecting applicants then punt the applicants around the types of lenders that want to tie you down with crazily high interest rates, unviable repayment terms and the ubiquitous PG. My advice is to look out for these shady practitioners. They want your personal ID, 6 months Bank Statements and annual accounts before even discussing solutions to your problem. They have only a passing conversational interest in your business. Be especially alert to the additional introduction “Fee” for getting to offer stage. One such broker added a 5% fee unto an already sky-high rate of interest front-loaded unto the principle, no reduction for early settlement, and of course the dreaded PG. Try getting 5% Interest per year on deposit of £200,000…. It is currently almost impossible yet, some brokers want 5% (£10,000 on that £200K) just for the introduction. That’s 3–5 times what Estate Agents will charge, and they typically must do some work and wait 6 months for the transaction to complete. The broker may well have punted your most personal details by email to any number of lenders leaving you exposed in many ways. Marcus did none of the above. He listened to the requirements. Noted preconditions, made no promises but came back very quickly with imaginative propositions. Very personal details and confidential information were requested only when there was agreement in principle. I will certainly use again.

Tyler Homeyard

Great company to deal with. Marcus is a great guy and knows what he’s doing. They helped me with factoring my invoices on Courier Exchange. Very seem less process. Highly recommend.