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.
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.
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Factoring Vs Invoice Discounting: The Differences Explained?
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.
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 |
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 and Invoice Discounting FAQ
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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.
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Which is cheaper Invoice Discounting or Invoice Factoring?
Invoice discounting is generally cheaper compared to invoice factoring.
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 businesses 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 you trade business to business and offer credit terms to your customers, then it may be a funding solution worth considering.
Apply For Factoring or Invoice Discounting Today
Speak with an independent invoice finance expert to see what your options are.
Free service, we do not charge any broker fees for Invoice Finance applications.
Call 0161 5469128 or fill in the form below