/ Corporate funding guide
Invoice finance: factoring vs discounting
If your customers pay on 60 or 90 day terms, your working capital is sitting in your sales ledger. Invoice finance releases it — but the structure you choose changes who your customers deal with and what the facility costs.
Guide reviewed September 2026 · Business-Utility.com
How the facility works
You raise an invoice as normal and notify the provider. A large share of its value is advanced to you immediately, and the remainder, less charges, is released when your customer pays. The facility grows with your turnover, which is what makes it useful for businesses scaling quickly.
Factoring
Under factoring the provider takes on credit control and collects from your customers, who know the facility exists. That removes an administrative burden and can improve collection times, but it puts a third party in front of your customer relationships.
- Sales ledger management and collections handled for you
- Customers are aware of the arrangement
- Often available to younger or smaller businesses
Invoice discounting
With discounting you keep your own credit control and the arrangement can usually stay confidential. It suits established businesses with reliable systems, because the provider is relying on your ledger discipline rather than its own.
- You continue collecting and own the customer relationship
- Commonly confidential to your customers
- Requires solid accounting systems and reporting
What it costs, and how to compare
There are two main charges: a discount charge on the money you have drawn, and a service fee expressed against turnover. Look beyond those to the ancillary items, which is where facilities diverge sharply.
- Discount charge on drawn funds
- Service fee on turnover
- Minimum fees where turnover falls short
- Charges for refactoring or invoices unpaid beyond a set period
- Notice period and termination terms
The limits to check before signing
Not every invoice will be funded. Providers apply rules to protect themselves, and those rules determine how much cash you actually receive.
- Concentration limits capping exposure to any single customer
- Recourse — whether you carry the loss if a customer does not pay, or the provider does
- Treatment of contracts with retentions, stage payments or applications for payment
- Export invoices and overseas debtors, which are often treated separately
- Debenture and personal guarantee requirements
Frequently asked questions
- What is the difference between factoring and invoice discounting?
- With factoring the provider manages your sales ledger and collects payment from your customers. With invoice discounting you keep collecting yourself, and the facility can often remain confidential.
- How much of an invoice can be advanced?
- Providers commonly advance a large proportion of an approved invoice's value up front, with the balance released, less charges, once your customer pays. The exact percentage depends on your sector and debtor book.
- Does invoice finance suit every business?
- It suits businesses invoicing other businesses on credit terms. It does not fit consumer-facing trade, work billed in advance, or contracts with heavy stage payments and retentions unless the provider specialises in those.
- What does invoice finance cost?
- There are normally two elements: a discount charge on the funds you draw, similar to interest, and a service fee on turnover. Compare total cost across a year rather than either figure alone.
Find out what your ledger could release
Tell us your turnover, average payment terms and customer profile. We tender the requirement across our funding panel and set out the advance rates and total costs available to you.
Discuss a funding requirement