Is Invoice Finance the Same as Factoring?
Mark Harris
Relationship Manager · Mar 24, 2024 · 6 min read
Invoice finance is the umbrella term for a category of products that advance cash against unpaid invoices. Factoring is one specific type of invoice finance. The distinction matters because different types suit different businesses, and the one your lender recommends may not be the right fit for your situation.
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Invoice finance: the umbrella
Invoice finance refers to any facility that uses your outstanding invoices as security to release cash before your customers pay. The common thread is that the finance company advances you a percentage (typically 80% to 90%) of invoice value upfront, then releases the balance when the customer pays, minus fees. The category includes factoring, invoice discounting, and selective (spot) invoice finance.
All three types address the same fundamental problem: the gap between raising an invoice and receiving payment. A business on 60-day payment terms that is growing rapidly needs working capital in weeks, not at the end of the quarter. Invoice finance solves this by collapsing the payment cycle.
Factoring vs discounting: the key difference
In factoring, the finance company takes over the management of your sales ledger. They send statements to your customers, chase overdue invoices, and collect payment. Your customers know you are using the facility. Factoring is typically suited to smaller businesses or those with limited internal credit control capacity.
Invoice discounting is confidential. You manage your own collections; customers pay into your account as normal and are unaware of the facility. Discounting requires stronger credit control and usually a higher minimum turnover (typically £500,000 or more). The invoice discounting line of credit is typically available to draw at any time against your approved invoices.
"Most businesses that say they want invoice finance actually mean they want invoice discounting, because they do not want their customers to know they are using a facility. Understanding the distinction before you speak to a lender saves a lot of wasted conversations."
- Mark Harris, Relationship Manager
The bottom line
The right type of invoice finance depends on your turnover, your credit control capability, and whether confidentiality matters for your customer relationships. Spark Finance compares 20+ invoice finance providers. Start at apply.sparkfinance.co.uk.
Check your eligibilityAbout the author
Mark Harris
Relationship Manager
Mark is a Relationship Manager at Spark Finance with a strong track record in merchant cash advances and short-term business loans. He specialises in revenue-based finance for hospitality, retail, and leisure businesses, helping operators access flexible funding tied to card sales volumes.
