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  • Difference between Factoring and Invoice Discounting

    Factoring vs Invoice Discounting

    Factoring and Invoice Discounting are terms used in Finance. Both are services in finance which allows businesses to release funds which are stuck as unpaid invoices. In these both financial services, A third party company usually advances money against outstanding balances. It helps releasing cash against monies which is already earned. These two services help companies to get proper cashflow in this current difficult economic state. The third party takes the responsibility of taking control of sales ledger, payment chasing and invoice processing.

    Factoring and Invoice Discounting

    In a nutshell, Factoring and invoice discounting solve the problems of slow payment from customers.

    In a nutshell, Factoring and invoice discounting solve the problems of slow payment from customers.


    • In Factoring, the third party company has the total control of sales ledger, going behind customers to get the payments and settlement of invoices and also managing the credit control of the business.
    • The cusomers are aware that the third party is in contract with a factoring company and is working towards advances money against outstanding balances.
    • Factoring financial service is chose better with smaller businesses.
    • Two or more companies share equal profits in the newly created company.

    Invoice Discounting

    • Invoice Discounting, the third party company is responsible for sales ledger, getting payments from sustomers and invoice processing
    • The customers are not aware of the relationship between the third party company and a financing company.
    • Invoice Discounting financial service is chose better with larger businesses.

    Which one to choose Factoring or Invoice Discounting ?

    Now that you know the differences. The next question is which one suites better. Well as mentioned as one of the differences, Factoring is chosen when you have a small business. The reason behind this is that the collection service and increased credit control that factoring provides.

    Invoice Discounting is chosen when you have a large business.

    Benefits of Factoring and Invoice Discounting

    • Both services are competitively priced
    • Cash is freed up to either lessen cash flow problems or grow the business
    • Factoring and invoice discounting providers often offer excellent business advice
    • Funding can be secured without requiring other assets
    • Funding levels increase with your turnover
    • Releasing up to 90% of the value of outstanding invoices within 24 hours
    • Supplier invoices paid promptly will increase your power to negotiate discounts

    Following are the areas of businesses where factoring and invoice discounting is used :

    • Construction
    • Manufacturing
    • Recruitment
    • Wholesalers

    These are the few differences between Factoring and Invoice Discounting.

    Posted under: Finance
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