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What is the difference between factoring and invoice discounting?

Take a look below for some key differences:

Factoring:

  • A bank or factoring company will purchase a company’s invoices for 70-85% of the invoice value. When they get paid in full the business will be able to access the remaining percentage (15-30%) minus the factoring company’s fees and interest
  • The use of factoring is disclosed to your clients
  • Factoring normally involved financing your whole sales ledger, even if you need to finance just a few invoices or if the need is only seasonal
  • The third party takes on the companies’ credit checking, the management of the sales ledger and credit control
  • Contract signing, updating and extending fees; annual limit fees on used and unused credit; fees for adding new customers; collateral contract fees.

Invoice Discounting:

  • Companies can sell just the invoices they choose to and at any time throughout the year. The company will usually receive up to 98% of the invoice value from investors (100% minus fees). Businesses that use the same platform and have a good history pay a smaller fee as they build trust with investors over time
  • The use of invoice discounting does not have to be disclosed to clients
  • Responsibility remains with the company for credit checking their clients and their sales ledger
  • No facility required or any contractual tie in with notice periods
  • No hidden fees or charges

For more information about differences between factoring and discounting see our blog post.

See also: how is Investly different from other providers?

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