Invoice Discounting vs Factoring – What’s The Difference?

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.

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.

Alternatively contact us to discuss your different options.

Factoring Vs Invoice Discounting: What Are The Differences?

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.

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Side By Side Comparison Table Invoice Discounting vs Factoring

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

FeatureInvoice FactoringInvoice 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?
NoneApprox.
£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?
YesYes
Can You
Fund Overseas
Export Invoices?
YesYes
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
AdvantagesIncludes 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
DisadvantagesDisclosed 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 2021

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.

Summary Factoring vs Invoice Discounting?

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 Invoice Factoring and 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 01204 860113 or fill in the form below

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