- Factoring
- Lender manages credit control
- Discounting
- You keep credit control in-house
- Disclosure
- Factoring usually disclosed to customers
- Typical advance
- 80%–90% of invoice value
How factoring works
The finance company advances a percentage of each invoice, then takes over collecting payment directly from your customers, chasing debts under its own name or yours depending on the facility. This suits businesses without an established credit control function, effectively outsourcing collections alongside the funding.
How discounting works
You retain full control of credit control and collections; the finance company simply advances against the sales ledger and is repaid as customers pay you as normal. Customers are typically unaware a financier is involved, which matters to businesses protective of client relationships.
When each option wins
The choice usually comes down to whether you have in-house credit control and whether disclosure matters.
- Factoring wins for smaller or younger businesses without a credit control team
- Discounting wins for larger, more established businesses with robust in-house processes
- Factoring wins where you're happy for customers to know finance is involved
- Discounting wins where confidentiality with clients is commercially important
Cost and eligibility differences
Factoring tends to cost slightly more because the service fee covers collections work, while discounting is usually cheaper per pound advanced but demands a track record and turnover threshold most lenders set before offering it, often in the region of £500k+ turnover.
Frequently asked
Will my customers know I'm using invoice finance?
Under factoring, usually yes, since the financier corresponds with them directly; under confidential discounting, typically not.
Which is better for a business with no credit control team?
Factoring generally suits this better, since the financier effectively runs collections for you.
Can I switch from factoring to discounting as I grow?
Yes, this is a common progression once turnover and internal processes are established enough for lenders to offer discounting terms.
Is discounting cheaper than factoring?
Usually slightly, because you're not paying for the collections service, but eligibility criteria are stricter.
What turnover do I need for invoice discounting?
It varies by lender, but many expect turnover well above the smaller end of the market — often several hundred thousand pounds or more — reflecting the trust placed in your own credit control.
Not sure which invoice finance fits?
Tell us your turnover, sector and whether you run credit control in-house and we'll match the right structure.
Related reading
Situations this applies to
Looking for local coverage? Invoice Finance by town · All areas we cover