Invoice Finance: How Invoice Factoring differs from Invoice Discounting | UK Business Loans

Summary: Invoice finance lets UK companies convert unpaid invoices into cash quickly. The key difference: factoring hands your sales ledger and collections to the provider (customers usually know); discounting is confidential and you keep control of the ledger. Both speed cashflow, but they suit different businesses. UK Business Loans introduces businesses to specialist lenders and brokers so you can get tailored quotes—start with a free eligibility check.

Get Quote Now — Free Eligibility Check (submitting an enquiry is not an application and won’t affect your credit score)

---

Quick comparison snapshot

Need the single-sentence answer? Invoice factoring delegates your sales ledger and collections to the provider (often disclosed to customers). Invoice discounting is usually confidential—your business keeps ledger control and handles collections.

Invoice Factoring vs Invoice Discounting — at a glance

Feature	Invoice Factoring	Invoice Discounting
Control of sales ledger	Provider usually takes control	Business keeps control
Visibility to customers	Often visible (customers notified)	Normally confidential
Credit control / collections	Provider handles collections	Your team handles collections
Typical costs	Higher service fees + discount fee	Lower fees, margin for confidentiality
Best for	Companies lacking collections resource	Established firms wanting confidentiality
Minimum size	Varies; many providers from ~£10k	Often needs larger turnover / stable ledger

How invoice finance works

Invoice finance is a form of debtor funding that unlocks cash tied up in unpaid invoices. Here’s the typical flow:

• Your business issues invoices to customers.
• You submit invoices to a finance provider or broker.
• The provider advances a percentage (often 70–90%) of each invoice value.
• When the customer pays, the provider returns the remainder less fees.

Why businesses use it: smooth seasonal cashflow, cover supplier payments, fund growth or meet payroll. Providers range from specialist lenders to brokers. UK Business Loans connects you quickly to the right partners so you can compare options and terms.

Get Started — Free, No-Obligation Quote

What is invoice factoring?

Definition and core features

Invoice factoring is a full-service option where the factoring firm buys or advances against your invoices and usually takes responsibility for the sales ledger and credit control. Customers are typically informed that invoices should be paid to the factor.

Types of factoring

• Recourse factoring — you remain liable if a debtor doesn’t pay; fees are generally lower.
• Non-recourse (bad debt) factoring — the factor assumes some credit risk, usually at a higher cost and with credit checks on your customers.
• Full-service vs partial — full-service includes collections and credit management; partial may leave some functions with you.

Pros

• Immediate working capital without new borrowing facilities.
• Outsourced credit control saves internal admin time.
• Useful for fast-growth businesses or those with limited collections resources.

Cons

• Customers know about the arrangement, which can affect relationships in some sectors.
• Costs can be higher than discounting, especially for non-recourse cover.
• Some contracts include minimum volume or service charges.

Example: A regional contractor with many supplier payments and limited admin hires factoring to free up cash and offload collections—allowing the team to focus on delivering projects.

What is invoice discounting?

Definition and core features

Invoice discounting advances funds against your invoices but is usually confidential. Your business retains control of the sales ledger and continues to collect payments from customers.

Types of discounting

• Confidential discounting — customers are not notified; your brand relationship remains intact.
• Selective discounting — finance against chosen invoices rather than the whole ledger.
• Whole-ledger discounting — facility covers the entire sales ledger for larger, established firms.

Pros

• Confidential — customers remain unaware.
• Often lower fees than factoring because you manage collections.
• Better suited to businesses with strong internal credit-control processes.

Cons

• Requires disciplined in-house collections and reporting.
• Lenders may require additional security or director guarantees.
• Not ideal if your team lacks skills or capacity for credit control.

Example: An established wholesaler with a reliable credit-control team uses discounting to keep customer relationships unchanged while freeing up working capital to buy seasonal stock.

Key differences: practical checklist

• Customer visibility: Factoring is usually disclosed; discounting is confidential.
• Control: Factoring hands ledger control to provider; discounting keeps it with you.
• Collections: Factoring providers run credit control; discounting expects your team to collect.
• Costs: Factoring typically has higher service fees; discounting can be cheaper but may require stronger security.
• Eligibility: Start-ups with limited credit history may find factoring easier; discounting usually suits established businesses with consistent turnover.
• Bank relationships: Either can sit alongside your bank facilities but check covenants—your broker can advise.

Need help deciding? Get a free quote — Get Quote Now

Which is right for your business?

Ask yourself:

• Do you want confidentiality or are you comfortable customers knowing about the finance?
• Do you have a capable credit control function?
• Are your customers creditworthy and prompt payers?
• Do you need ongoing funding or occasional advances for selected invoices?

Typical recommendations:

• Factoring: Best for businesses without a collections function or those needing full administrative support.
• Discounting: Best for established firms that want to manage customer relationships and keep the ledger private.
• Selective / hybrid solutions: Some providers offer blended services—your broker can negotiate terms that match your needs.

Costs, fees and typical terms

Fees vary by provider, industry risk and customer credit. Typical elements include:

• Advance rate: Often 70–90% of invoice value (example only).
• Discount fee / interest: 0.5%–2.5% per invoice value depending on risk and term (example only).
• Service / administration fees: Could be £50–£200+ per month, or transaction-based charges (example only).
• Non-recourse premiums: Additional cost if provider assumes bad-debt risk.

Example (indicative only): advance 80% on a £100,000 invoice book; provider advances £80,000, applies a 1% discount fee and administration charges. Exact pricing depends on your debtor profile and provider appetite—get personalised quotes.

Free Eligibility Check — Get Quote Now

How UK Business Loans helps

UK Business Loans does not lend. We are an introducer that helps limited companies find the right invoice finance solutions from lenders and brokers across the UK. Here’s what we do:

• Match your business to lenders or brokers with sector experience.
• Collect a short set of details (it’s not an application) and share these with suitable partners to get quick quotes.
• Save you time and increase your chance of a competitive offer—responses often arrive within hours.

Your data is handled securely and shared only with partners relevant to your enquiry. Typical funding sizes we help with start at around £10,000 and go upwards.

Start Your Enquiry — It takes under 2 minutes

What you’ll need to apply

• Company details and contact information
• Recent aged debtor report / sales ledger
• Copies of the invoices you wish to finance (often VAT invoices)
• Recent bank statements and turnover figures
• Basic ID for directors

Typical timeline: enquiry → matched partner contacts you (hours to a day) → due diligence (days) → funding depends on provider and complexity (from same day to a few weeks).

Frequently asked questions

What is the difference between recourse and non-recourse?

Recourse means you may have to repay the advance if a debtor does not pay. Non-recourse transfers certain bad-debt risks to the funder but attracts higher fees and stricter credit checks.

Will invoice finance affect my customer relationships?

Factoring usually involves customer notification so it can change how customers pay; discounting is confidential and keeps interactions unchanged. Choose what fits your relationship strategy.

Is invoice finance regulated?

Invoice finance is provided by a mix of lenders and brokers operating under various legal and regulatory frameworks. UK Business Loans is an introducer; completing an enquiry does not constitute regulated financial advice.

Can I finance overdue invoices?

Some providers will consider overdue invoices, but terms and pricing vary. Older or disputed debts can reduce eligibility.

Does applying affect my credit score?

Submitting an enquiry through UK Business Loans is not an application and will not affect your credit score. Individual lenders may perform checks later if you apply formally.

How fast can I get funding?

Speed depends on provider and case complexity. Some invoice finance facilities can be set up within days; simpler selective invoice funding can be quicker.

Get a Tailored Quote — Free Eligibility Check

Final summary & next steps

Invoice factoring and discounting both free up cash tied to invoices, but they differ in who controls the ledger and whether customers are notified. Factoring suits businesses that want an outsourced credit function; discounting suits firms that value confidentiality and already manage collections. If you’re ready to explore options and compare real quotes, complete a short enquiry and we’ll match you to the lenders or brokers likely to deliver the best terms for your business.

Start Your Enquiry — Get Quote Now

UK Business Loans is an introducer. We do not provide loans or regulated financial advice. Submitting an enquiry is not an application. Typical enquiry and funding amounts start from around £10,000 upwards. Terms, rates and eligibility vary by lender.

Related resources

• Business loans
• Asset finance
• Contact us
• invoice finance
• Privacy policy

---

Content by: [Author Name], Finance Industry Writer — reviewed by [Senior Broker Name], Senior Broker. Last reviewed: 01 November 2025.

1. What is invoice finance?
Invoice finance lets UK companies convert unpaid invoices into cash quickly by advancing a percentage of invoice value through products such as invoice factoring or invoice discounting.

2. What’s the difference between invoice factoring and invoice discounting?
Factoring usually hands your sales ledger and collections to the provider (and is often visible to customers) while discounting is typically confidential and lets you retain ledger control and handle collections.

3. How much does invoice finance cost?
Costs vary by provider and debtor risk but typically include an advance rate (often 70–90%), a discount fee or interest (eg. 0.5–2.5% per invoice), service/administration charges and possible non‑recourse premiums.

4. Will enquiring through UK Business Loans affect my credit score?
No — submitting an enquiry via UK Business Loans is not an application and won’t affect your credit score; lenders may only carry out checks if you formally apply.

5. How fast can I get invoice finance?
Speed varies by provider and complexity, ranging from same‑day or a few days for simple selective funding to several weeks for full whole‑ledger facilities, with brokers often able to respond within hours.

6. Can I get invoice finance with bad credit?
Yes — some lenders and brokers specialise in supporting businesses with imperfect credit, although terms, pricing and eligibility depend mainly on your debtor profile and ledger quality.

7. Will my customers know if I use invoice finance?
With factoring customers are usually notified and asked to pay the factor, whereas discounting is normally confidential so your customers remain unaware.

8. What documents will I need to apply for invoice finance?
You’ll typically need company details, an aged debtor report or sales ledger, copies of the invoices you want to finance, recent bank statements, turnover figures and basic ID for directors.

9. Is invoice finance suitable for my industry or sector?
Many sectors—construction, manufacturing, wholesale, logistics and professional services among them—use invoice finance, but suitability depends on the creditworthiness and consistency of your customers.

10. How does UK Business Loans help me get invoice finance?
UK Business Loans is a free introducer that matches your short enquiry to trusted UK lenders and brokers who can provide tailored invoice factoring or discounting quotes and guide you through next steps.