Invoice factoring vs invoice discounting: the real difference
Both advance cash against invoices you have already issued. The whole comparison comes down to one question: who collects the money.
- Who collectsFactoring: they do
- ConfidentialityDiscounting only
- Typical advance80–90%
- Cheaper, usuallyDiscounting
- Lower entry pointFactoring (~£50k+)
Side by side
| Invoice factoring | Invoice discounting | |
|---|---|---|
| Who collects payment | The funding partner, direct from your customer | You, as normal |
| Confidentiality | Usually visible to customers | Confidential (customer unaware) |
| Typical advance rate | 80–90% of invoice value | 85–90% of invoice value |
| Cost level | Higher (you are buying their credit-control team) | Usually slightly lower |
| Credit control | Run by the funding partner | Run by you |
| Typical minimum turnover | From roughly £50,000/year | From roughly £250,000/year |
| Who suits it | No in-house credit-control team, smaller or newer books | Established books with a working credit-control process |
The product choice is not really about cost. It is about whether you already have a credit-control team, or want the funding partner to be one.
How each one flows
Factoring: the funding partner steps into your credit-control role and collects direct from your customer.
Discounting: you keep collecting under your own name. Confidential, your customer sees nothing change.
How to choose
- You have no dedicated credit-control or collections team
- You are adding new B2B customers quickly and need underwriting on each one
- Your annual turnover is under roughly £250,000
- You are comfortable with customers seeing a funding partner on statements
- You already run a working credit-control process in-house
- Keeping the arrangement invisible to customers matters to you
- Turnover clears roughly £250,000/year with current management accounts
- You want the (usually) slightly lower cost of self-collection
Neither fits every situation exactly. If you only need to fund one invoice, or are not ready to commit your whole ledger either way, see selective invoice finance instead. For the full cost breakdown behind both products, see what invoice finance actually costs.
Frequently asked questions
Factoring: the funding partner collects payment from your customer directly. Discounting: you keep collecting payment yourself and your customer never knows a funding partner is involved.
Discounting is usually a little cheaper, because you are still running your own credit control rather than paying the funding partner to run it for you. The gap is normally small, your debtor quality and turnover move the price far more than the product choice does.
Yes, and it is a common path. Businesses often start on factoring while they build a credit-control function, then move to discounting once that team is in place and turnover clears the typical £250,000 threshold.
Selective invoice finance sits outside this comparison entirely: instead of committing your whole ledger to either structure, you choose individual invoices to fund. See selective invoice finance for how that works.
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See how much you could releaseLast reviewed: August 2026
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