Invoice Finance-  Factoring orDiscounting:

What’s best for my business?

One of the biggest pressures for any business is waiting on invoices to be paid, affecting cash flow. Invoice finance could be a solution to ease cash flow pressure – unlocking cash that is tied up in unpaid invoices.

Factoring and discounting are different types of invoice finance, coming with their own sets of advantages and disadvantages. But which one is most suitable for your business requirements?

What is invoice finance?

Invoice finance in simple terms is when finance is secured against your outstanding invoices. An invoice finance lender will loan most of the value of your invoice almost immediately.

This type of cash flow finance facility is used quite often by companies who have long payment terms, for example, those who may have 60 – 120 day terms. As well as businesses such as wholesalers who have customers who may be purchasing large quantities at once and due to payment terms may be faced with cash flow restrictions.

However, this type of finance facility can be utilised by any business to relieve cashflow pressures.

File of Papers and Invoices

What’s the difference between invoice finance discounting and factoring? 

The main difference between the two is about who’s responsible for collecting and chasing outstanding unpaid invoices.

Invoice Factoring

Invoice factoring is when a finance provider is responsible for managing your sales ledgers and chasing unpaid invoices on your behalf.

Advantages of invoice factoring

  • As the finance provider is responsible for managing your sales ledger and credit control, you will be able to focus on other areas of your business
  • A lender will look at your customer’s payment history than your credentials – making it more accessible than a traditional bank loan

Disadvantages of invoice factoring

  • Your customers/clients may want to deal with you directly
  • Your customers/clients will be dealing with the finance provider so they will probably be aware that you’re using invoice factoring
  • You will have to pay for the additional sales ledger and credit control service

Invoice Discounting

Invoice discounting is when you’ll remain in control of your sales ledger and the business will be responsible for collecting and chasing unpaid invoices.

Similar to invoice factoring, customers will pay their invoice into an account managed by the finance provider however it will have your business’ name on it so it’s unlikely that your customer/clients will know that you’re using an invoice finance facility.

Advantages of invoice discounting

  • Can be cheaper than invoice factoring and more confidential
  • The business will retain more control which can be beneficial when it comes to maintaining customer relationships

Disadvantages of invoice discounting

  • Invoice discounting is usually only available to more established businesses with a robust credit collection process and a higher turnover, usually more than £100,000
  • You will need to manage your own credit control and ensure that your customers pay on time

Would Invoice Finance Factoring or Discounting be best for my business?

The type of invoice finance facility that you choose will depend on your business’ size, resources and circumstances. Invoice factoring may be more suitable if you run a smaller business with less credit control and debt collection resources.

While a discounting option may be more suitable if you prefer to chase your own customer invoices or if you’re able to deal with your own sales ledger and credit control.

If you’re unsure, you can speak to a commercial finance broker like us and we will discuss your finance options with you and find the best finance option to meet your business’ requirements. 

Contact Amplo Commercial about Invoice Finance (or for other commercial finance options)

If you’re looking to apply for invoice finance or would like to find out more information, don’t hesitate to get in touch with our team. We’re more than happy to have a no-obligation discussion about your business’ requirements.

As a commercial finance broker, we can also arrange asset finance, property finance and other aspects of cash flow finance such as business loans.

Call us on 01270 443510 or complete our enquiry form and we’ll be in touch as soon as possible.


Amplo Group
11 Mallard Court, Mallard Way, 
Crewe, Cheshire, CW1 6ZQ

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