The difference between factoring and invoice discounting


Factoring or invoice discounting; how do they differ and which one is right for your business? This article can help you figure it out.

Having the right financial support in place is important for every business, allowing you to achieve your goals, improve your cash flow and expand your business.

With a huge range of funding options available to businesses, there’s no reason every business shouldn’t find the perfect funding to suit their needs.

Here we explore the differences between two types of invoice finance – factoring and invoice discounting – to help you decide which one is best for your business.

What is invoice finance?

Before we break down the differences between factoring and invoice discounting, let’s recap what any invoice finance facility can offer.

Invoice finance allows businesses which trade on credit terms to release funds from invoices before the customer has paid. Up to 90% of the value of invoices can be made available within 24 hours of issuing them, keeping cash free to fulfil the order, meet day-to-day cash flow requirements and reinvest in your business.

There are clear benefits to invoice finance, including:

Invoice finance can be a great choice for many businesses, and different types of invoice finance come with different benefits and services to suit individual needs.

Use our availability calculator to discover how much you could release with invoice finance, and whether factoring or invoice discounting could be best suited to your requirements

Invoice discounting vs Factoring

The main difference between invoice discounting and invoice factoring comes down to who’s in control of sales ledger management and collecting payment from customers.

Most invoice factoring facilities include a sales ledger management service, so the funding provider will be responsible for credit control and collecting payment from your customers. This can have huge time and cost-saving benefits for businesses, who may lack the expertise or resource to ensure the timely payment of invoices.

Customers will typically pay the invoice to the funder, and the remainder of the invoice value will be made available to you, minus the funder’s fee, upon payment.

Invoice discounting, on the other hand, leaves the responsibility of sales ledger management in the hands of your company and is provided confidentially. You will collect payment from your customers as normal, but into a trust account set up by the funder. This enables you to continue to manage your all-important customer relationships, which typically means they won’t know that you have a funding facility place.

In general, factoring tends to be better suited to smaller businesses that would benefit from the expert sales ledger management service as well as the funding. Invoice discounting is typically more suited to businesses that turn over at least £1 million and already have established and effective credit control procedures in place.

Finding the right facility for your business

We hope this article has helped you to clarify the difference between invoice discounting and factoring, and understand which might be a better fit for your business.

However, with a huge range of funding options available to businesses nowadays, it’s worth exploring all your options before you make a decision.

Alongside different options you’ll also need to look at the different funding providers, as they can all offer a range of benefits and areas of specialism, and finding the right funder can make a huge difference in the success of your new facility.

At Hilton-Baird Financial Solutions, we have a proven track record of introducing businesses of all sizes to the most suitable funding facilities that meet their specific requirements. As an award-winning invoice finance broker, our funding experts work with businesses at every stage of their funding search to save them time, and can introduce you directly to the decision makers to speed up the process.

To explore your options with one of our funding experts, call us on 0800 9774833 or request a call back at a time that suits you.


Some of the funders we work with

  • Close Brothers Invoice Finance
  • Time Finance
  • InvoCap
  • Aldermore Invoice Finance
  • Royal Bank of Scotland
  • Woodsford Tradebridge
  • Investec
  • Sonovate
  • Skipton Business Finance
  • Kriya
  • Accelerated Payments
  • Blazehill Capital
  • 4Syte
  • Castlebridge
  • Ultimate Finance Group
  • Davenham Trade Finance
  • Giant
  • Cynergy Business Finance
  • Leumi ABL
  • IGF Invoice Finance
  • Roma Finance
  • PNC Business Credit
  • Peak Cashflow
  • Nationwide Finance
  • Clear Factor
  • eCapital Commercial Finance
  • Partnership Invoice Finance
  • Praetura Invoice Finance
  • Tradeplus24
  • Merchant Money
  • Haydock Finance Ltd
  • Optimum Finance
  • Santander Corporate & Commercial
  • Regency Factors
  • Davenham Asset Finance
  • MaxCap
  • Metro Bank SME Finance
  • ABN AMRO Commercial Finance
  • Berkeley Trade Finance Ltd
  • Lloyds Bank Commercial Finance
  • Pulse Cashflow Finance
  • Barclays
  • Team Factors

Authorised and regulated by the Financial Conduct Authority (FCA number 730445)
We are a credit broker and not a lender and offer credit facilities from a panel of lenders