Weighing invoice factoring vs invoice discounting while customers pay late? The core difference is who collects: with factoring the provider chases your customers, with discounting you keep collecting yourself. This guide explains both plainly.
This guide is part of the site’s wider coverage of invoice factoring.
| Item | Value |
|---|---|
| Typical advance, invoice discounting | 70-95% of invoice value |
| Typical advance, invoice factoring | 80-90% of invoice value |
| Discounting service charge | 0.2-1.5% of invoice value or gross turnover per month |
| Factoring service fee | 1-3% of invoice value monthly |
| Minimum turnover many discounting providers want | usually £20,000+ per month |
These figures come from Funding Circle’s UK guide, published 2nd July 2026. They vary by provider and country and can change, so check the source before you rely on them.
How the two products work
Both are forms of invoice finance. According to Funding Circle’s guide, published 2nd July 2026, invoice financing lets a business get money upfront based on the value of unpaid bills instead of waiting for customers to pay.
Invoice factoring
In invoice factoring, a finance provider called a factor buys your invoices and takes over the job of collecting payment from your customers, as Funding Circle describes it. LegalVision, in a page updated on 2 July 2025, adds that the factor buys the receivables at a discounted rate.
Funding Circle outlines the usual steps:
- You sell the invoice to the factor.
- You receive an advance of 80-90% of the invoice value.
- The factor contacts your customer and collects payment.
- The factor pays you the balance, less its costs.
Invoice discounting
With invoice discounting, your business borrows money on the basis of unpaid invoices and still collects payment from its own customers, according to Funding Circle. The same guide says the advance is usually 70-95% of the invoice value, though this varies by lender.
The sequence is different:
- You bill your customer as normal.
- You send the invoice to the finance provider and receive an advance.
- Your customer pays you.
- You pay back the advance, including fees and interest, to the provider.
Advance sizes differ between sources. LegalVision’s page, updated on 2 July 2025, puts the usual discounting advance at 70-85%, so treat any percentage as a range rather than a fixed rule.
The main differences at a glance
Four UK sources describe the split in similar terms. The points below summarise where they agree.
- Collections: Spark Finance says that with factoring the provider takes over credit control, while with discounting you retain full control of it.
- Disclosure: Spark Finance describes factoring as a disclosed arrangement, so your customers will know a factor is involved, and discounting as typically confidential.
- Cost: Skipton Business Finance, in a page dated 6th August 2024, says factoring can be slightly more expensive than discounting.
- Flexibility: the same Skipton page says discounting usually means financing all your outstanding invoices, while factoring can cover specific invoices.
- Eligibility: Spark Finance says discounting typically requires a stronger trading history and larger turnover.
Skipton and Spark Finance both sell or broker these products, so their pages are a provider’s view. Reading them next to the more general Funding Circle and LegalVision guides helps balance that.
What do factoring and discounting cost?
Funding Circle’s guide gives a service charge for discounting of 0.2-1.5% of invoice value or gross turnover per month, plus interest that varies by provider. For factoring it gives a service fee of 1-3% of invoice value monthly.
Funding Circle says factoring normally costs more because the factoring company handles collections. It adds that the extra expense may be offset by savings in your own credit control department.
The same guide’s FAQ says discounting is often 0.5-1.5% cheaper per month than factoring, but that the gap narrows once you count the cost of your own credit control team. A fuller breakdown of charges sits in the guide to invoice factoring fees.
All of these figures are UK examples. Fees, advance rates and rules vary by provider and country, and each provider sets its own terms.
Which one might suit which business?
This is general background, not a recommendation. Funding Circle lists questions that businesses commonly weigh:
- Customer relationships: if you want to manage your sales ledger yourself, Funding Circle says discounting is the better option.
- Confidentiality: Funding Circle says discounting is more discreet if you do not want customers to know you use invoice finance.
- Cost: Funding Circle says discounting is usually cheaper if cost is the main concern, since you manage collections yourself.
- Repayments: Funding Circle says discounting involves recurring repayments whether or not customers have paid, while factoring has no repayments and you pay costs when the factor collects.
- Business size: Funding Circle says smaller firms may qualify for factoring more readily.
Entry thresholds are another factor. Funding Circle’s guide, published 2nd July 2026, says most discounting providers want a minimum monthly turnover, usually £20,000+.
By comparison, LegalVision, in a page updated on 2 July 2025, says a factoring arrangement usually needs at least £50,000 in annual turnover. The two figures use different periods and different providers, so they are not directly comparable and any single provider’s requirements may differ.
Spark Finance notes that many businesses start with factoring and move to confidential discounting as they grow. Readers curious about where these products came from can read the history of invoice factoring.
Risks and drawbacks to weigh
Funding Circle lists several downsides of invoice finance in general:
- Interest and monthly fees go into your profit margin.
- Factoring can expose to your customers that you are being financed.
- Invoice finance often costs more than traditional business loans.
- It requires continuous invoicing and credit-worthy customers.
On responsibility, Funding Circle says that with discounting your business stays liable. Skipton Business Finance says factoring is perceived as less risky because the provider oversees credit control, whereas with discounting you must make sure customers pay.
Because providers describe their own products, compare the written terms of any specific facility, including who bears the loss if a customer does not pay.
Frequently asked questions
Is factoring more expensive than discounting?
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Generally yes, according to Spark Finance and Funding Circle, because factoring includes a credit control service. Funding Circle adds that the difference narrows once you count the cost of your own credit control team.
Will my customers know I use invoice finance?
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With factoring, yes, since the provider deals directly with your customers, as Skipton Business Finance’s page dated 6th August 2024 explains. Discounting is typically confidential.
Can a business switch from factoring to discounting later?
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Spark Finance says many businesses start with factoring and transition to confidential discounting as they grow. Whether a switch is possible depends on the provider’s terms.
Do I have to finance every invoice?
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Skipton Business Finance says discounting usually means financing all outstanding invoices, while factoring can advance funds against specific invoices. Other providers may structure this differently.
This guide is for general information and education only and is not financial, investment, tax or legal advice.
