Is invoice discounting confidential?

Yes, in most cases. Confidential Invoice Discounting (CID) — the most common form — means your customers pay into your own bank account as normal and never know a finance company is involved. Disclosed invoice discounting (less common) requires a notice on invoices directing payment to the finance company, similar to factoring. Always confirm whether the facility is confidential before proceeding.

Which is cheaper — factoring or discounting?

Invoice discounting is typically cheaper than factoring because you're doing your own credit control (saving the factor the cost of that service). Typical factoring costs are 0.75–2.5% of invoice value plus a service charge; discounting is typically 0.5–1.5% plus a smaller admin fee. However, factoring includes credit control as a service — if you'd otherwise employ a credit controller, the net cost difference narrows significantly.

Can I factor or discount individual invoices rather than my whole ledger?

Yes. Selective or spot invoice finance allows you to choose specific invoices to fund without committing to a whole-ledger facility. This is more expensive per invoice (typically 3–5% of invoice value) but provides flexibility for businesses with occasional large invoices they need to unlock quickly, without the ongoing commitment of a full facility.

What happens if a customer doesn't pay?

Under recourse factoring (the most common type), if your customer doesn't pay within an agreed period (typically 90 days past due), the finance company returns the invoice to you and you must repay the advance. Under non-recourse factoring, the factor absorbs the bad debt risk, but the premiums are higher and credit limits are tighter. Invoice discounting is almost always recourse — you carry the debtor risk.

How long does it take to set up invoice finance?

A full factoring or discounting facility takes 1–4 weeks to set up, including credit checks on your debtors and review of your accounts and bank statements. Once established, funding against new invoices can be released within 24 hours. Some fintech providers offer faster onboarding (5–10 days) for simpler ledgers.

Invoice Factoring vs Discounting: Which Should You Choose?

The Core Difference

Both invoice factoring and invoice discounting are forms of invoice finance — they allow you to access cash tied up in unpaid invoices rather than waiting 30, 60, or 90 days for your customers to pay. The key difference is who manages the credit control process.

	Invoice Factoring	Invoice Discounting
Who chases debtors?	Finance company	You
Do customers know?	Yes	Usually no (confidential)
Admin responsibility	Finance company	Your business
Suitable for turnover	£100k–£2m+	£500k–£50m+
Typical service charge	0.75–2.5% of turnover	0.1–0.5% of turnover
Discount fee	0.5–3% above base rate	0.5–2.5% above base rate

How Invoice Factoring Works

You issue an invoice to a customer
You upload the invoice to the factor’s platform (or batch-upload your sales ledger)
The factor advances typically 80–90% of the invoice value within 24 hours
The factor manages all credit control — sending reminders, chasing, and collecting payment directly from your customer (usually paying into a trust account)
When the customer pays, the factor releases the remaining 10–20%, minus their fees
Your customers pay the factor directly and are aware of the arrangement

How Invoice Discounting Works

You issue invoices and upload them to the finance company’s platform as normal
The finance company advances 80–90% of the verified invoice value
You continue to manage your own credit control — your customers pay your bank account as normal
You notify the finance company as invoices are paid, and the remaining 10–20% is released
Your customers are unaware of the arrangement (under confidential invoice discounting)

Confidentiality — Why It Matters

For many businesses, keeping invoice finance confidential is commercially important:

Some customers — particularly large corporates or public sector bodies — view factoring as a sign of financial fragility and may reassess their relationship with the supplier
In competitive markets, revealing that a competitor has the stronger financial position can affect tendering
Some contracts prohibit assignment of receivables to a third party (a common contractual restriction worth checking)

Invoice discounting resolves all three concerns. Factoring, by contrast, requires the finance company to send payment instructions to your customers, making it visible.

Which Is Right for Your Business?

Choose Invoice Factoring When:

Your business turns over under £500,000 — discounting facilities often have minimum volume requirements
You have limited internal credit control resource — factoring includes a collections service as part of the package
Your debtors are slow payers and you need professional collection support
You’re growing quickly and can’t yet afford a dedicated finance team
Your customers are used to factoring in your industry (common in recruitment, construction sub-contracting, and transport)

Choose Invoice Discounting When:

Your business turns over £500,000+ with a reasonably diversified debtor book
You have strong internal credit control — you already collect effectively and don’t need the factor’s help
You want to keep the arrangement confidential from customers
Your customer relationships are sensitive to third-party involvement
You want to retain the commercial relationship with your customer including the payment conversation

Costs in Detail

Factoring Costs

Service charge: 0.75–2.5% of invoice value. Covers credit control, ledger management, and collections.

Discount (interest) charge: Typically base rate + 1.5–4%, applied to the funds you’ve drawn. At current base rate of 4.5%, you’d pay approximately 6–8.5% per annum on outstanding advances.

Example: £50,000 invoice, 75 days to payment, advance rate 85%, service charge 1.5%, discount rate 7.5%:

Advance: £42,500
Service charge: £750 (1.5% of £50,000)
Discount fee: £42,500 × 7.5% × (75/365) = £654
Total cost: £1,404 (2.8% of invoice value)

Invoice Discounting Costs

Service/admin fee: 0.1–0.5% of turnover annually — far lower than factoring because you manage credit control.

Discount charge: Base rate + 1–3% on drawn amounts.

Example (same invoice):

Advance: £42,500
Admin fee (annual, pro-rated): ~£150
Discount fee: £42,500 × 6% × (75/365) = £524
Total cost: £674 (1.35% of invoice value)

The difference in cost is real but narrows when you account for the credit control service factoring includes.

What to Watch Out For

Minimum fee clauses — some factors charge a minimum monthly fee regardless of invoice volume; relevant if your business is seasonal
Concentration limits — if one customer represents more than 30–40% of your ledger, lenders may restrict how much they’ll advance against that debtor
Bad debt protection — weigh up non-recourse factoring if you trade with financially weaker customers
Exit clauses — most facilities are 12-month rolling contracts with 3–6 months’ notice required; check the exit terms before you sign

What is the difference between invoice factoring and invoice discounting?

In short