Invoice Factoring vs Invoice Discounting: What Actually Differs

Both products do the same core thing: a lender advances you most of the face value of an unpaid invoice before your customer pays. Typically up to around 90%, with the balance (minus fees) released once they settle. The split is in who chases the debt and whether your customers see a third party on the paperwork.

With factoring, the lender takes over credit control. They send statements, chase late payers, and collect in their own name or under a disclosed arrangement. Your customer knows. That is not necessarily a problem, but it is a conversation you want to have before you sign, not after. In return, the lender carries more of the admin burden, which makes factoring more accessible for younger businesses or those without a finance team. The service fee is slightly higher to reflect that.

With discounting, you keep credit control. The facility runs in the background, your customer pays you as normal, and you sweep the collected cash back against the facility. It stays confidential. Lenders offering discounting want to see that your credit-control function actually works, which usually means a track record, some turnover history, and processes they can review. The cost is a fraction lower because you are doing the legwork.

The lender who says yes to factoring is often not the same one who says yes to discounting on the same business. A firm at £800k turnover with mixed debtor quality gets a different answer from the same panel than a firm at £3M with blue-chip customers on 30-day terms. We broker both, so we route you to the lender whose criteria fit your customers, your team, and how much of the collections work you want to keep in-house.