Invoice factoring vs invoice discounting: which is right for your business?

The core difference is who manages your sales ledger and credit control. With invoice factoring, the finance provider takes over: they send statements to your customers and chase payments on your behalf. Your customers will know a third party is involved. With invoice discounting, you retain full control: you manage credit control internally and the facility is completely confidential. Your customers never know.

Invoice discounting is generally cheaper than invoice factoring because the lender is not providing the credit control service. Factoring typically costs 0.75–3% of invoice value in service fees, while discounting service fees are lower at around 0.2–0.5%. However, both carry a discount charge (interest on the cash advanced). For businesses with strong internal credit control, discounting often represents better value.

Invoice discounting is typically available to businesses with annual turnover above £500,000 that have proven internal credit control processes. Smaller businesses or those without a dedicated finance function are usually steered towards invoice factoring, where the provider handles credit control for them. There are some selective or confidential factoring products available to smaller businesses as a middle ground.

Not necessarily. Reputable factoring providers handle credit control professionally, and many businesses find that payment times actually improve because the provider follows a consistent, systematic process. The key is choosing a provider with a good track record and being transparent with your customers about the arrangement upfront.

Yes. Many businesses start on factoring and transition to invoice discounting as they grow and build internal credit control capability. Your broker can manage the transition to a new facility when your business is ready, ensuring there is no gap in funding.

Most mainstream lenders require a minimum annual turnover of £500,000 for confidential invoice discounting. Some specialist lenders will consider businesses from £250,000 turnover if internal credit control processes are strong. For businesses below these thresholds, confidential factoring or selective invoice finance are often appropriate alternatives.