The core difference
With invoice factoring, the finance provider takes over your credit control function. They chase your customers for payment on your behalf and your customers pay them directly. This is a disclosed arrangement: your customers will know a factor is involved.
With invoice discounting, you retain full control of your credit control process. Your customers pay you as normal and are not aware of the finance arrangement. You use those funds to repay the advance. This is typically a confidential arrangement.
Side-by-side comparison
- Credit control: factoring provider manages it; you manage it yourself with discounting
- Disclosure: factoring is disclosed to customers; discounting is typically confidential
- Cost: factoring is usually more expensive due to credit control services
- Eligibility: discounting typically requires stronger trading history and larger turnover
- Suitable for: factoring suits smaller or faster-growing businesses; discounting suits more established businesses
Which product is right for you?
If you have a high volume of invoices, no dedicated credit control team, and do not mind your customers knowing you use a finance facility, factoring is likely the more straightforward choice.
If you have a competent in-house collections team, prefer to keep the arrangement private, and meet the higher turnover thresholds required by discounting lenders, invoice discounting will typically give you a better cost outcome and more operational autonomy.
Frequently Asked Questions
Is factoring more expensive than discounting?
Generally yes. Factoring service charges are typically higher because they include a credit control service. For businesses without in-house collections capability, however, the cost of providing that service internally may exceed the factoring premium.
Can I start with factoring and switch to discounting later?
Yes. Many businesses start with factoring and transition to confidential discounting as they grow, develop their credit control function, and meet the higher thresholds required by discounting lenders.