Invoice discounting vs factoring for UK manufacturers — how they work (and which suits your factory)

Summary: Manufacturing firms often have long production cycles and large invoices that tie up cash. Invoice discounting and factoring both convert unpaid invoices into working capital, but they differ in confidentiality, who manages collections, cost and suitability. Invoice discounting keeps credit control in-house and is usually confidential; factoring transfers collection and credit risk management to the factor and is better for businesses needing outsourced debtor management. UK Business Loans helps UK manufacturers compare specialist lenders and brokers from £10,000 upwards — complete a Free Eligibility Check to get matched quickly.

Intro — why invoice finance matters for manufacturers

Manufacturers routinely wait 30–120+ days to get paid. Raw materials, labour and machine time must be paid long before customers settle invoices — that working capital gap can slow production, stop supplier payments or prevent winning bigger contracts. Invoice finance releases money tied up in unpaid invoices so you can keep the factory running, buy materials, or take on larger orders.

On this page you’ll learn how invoice factoring and invoice discounting work specifically for UK manufacturers, typical costs and advance rates, real-world scenarios and the documentation lenders will want. When you’re ready, complete a Free Eligibility Check and we’ll match you to specialist lenders or brokers.

Quick at-a-glance comparison

• Confidentiality: Discounting — usually confidential; Factoring — usually disclosed to customers.
• Collections: Discounting — you keep control; Factoring — factor handles collections.
• Sales ledger: Discounting — retained by you; Factoring — often managed by the factor.
• Advance rates: Typically 70–90% of invoice value (depends on debtor quality).
• Best for: Discounting — established manufacturers with strong credit control; Factoring — firms needing outsourced AR, or with many small debtors.

Why invoice finance suits manufacturers

Manufacturing has predictable reasons to use invoice finance:

• Long production cycles and phased contract payments (milestones that don’t align with supplier bills).
• High material and labour costs paid upfront.
• Seasonal demand or volume spikes that require fast working capital.
• Export sales with longer or variable payment terms.

Example: a sheet-metal subcontractor wins a contract with 90-day payment terms. Using invoice finance, they can access most of the invoice value immediately and keep production moving without overdraft pressure.

What is invoice factoring?

How factoring works — step-by-step

1. You assign (sell) invoices to the factor.
2. The factor advances a percentage (e.g. 70–85%) of each invoice value, typically within 24–72 hours of verification.
3. The factor takes responsibility for collecting payments from your customers.
4. When the customer pays, the factor returns the remaining balance minus fees and charges.

Types of factoring

• Disclosed factoring: customers are told to pay the factor — common and straightforward.
• Confidential factoring: less common — customers may not be told (limited availability).
• Recourse vs non-recourse: recourse means you keep bad-debt risk; non-recourse transfers certain bad-debt risks to the factor (higher fees, subject to debtor credit checks).

Typical terms & fees

• Setup or onboarding fee (one-off).
• Service fee: a percentage of the invoice value (often 0.5%–3% per month, depending on volume and debtor quality).
• Collection fees and admin charges.
• Interest/discount rate if funds are advanced over longer periods.

Pros for manufacturers

• Outsourced credit control reduces admin and speeds up cash collection.
• Can be ideal when selling to many small or unknown customers.
• Speeds cash flow for growth or large contracts.

Cons

• Customer relationships can be affected if collection methods are aggressive.
• Often more expensive than discounting, especially for high-risk debtors.
• You relinquish some control over collections and the sales ledger.

What is invoice discounting?

How discounting works — step-by-step

1. You retain the sales ledger and continue collecting from customers.
2. The lender advances a percentage of your invoices (e.g. 70–90%) against approved debtors.
3. When customers pay, the lender releases the balance minus a fee and any interest.

Confidentiality & control

Invoice discounting is usually confidential — customers continue to pay you directly — making it attractive when you supply large, strategic customers and want to protect relationships.

Typical terms & fees

• Lower visible impact and often lower service costs than factoring if your AR processes are strong.
• Facility fees, utilization fees and interest may apply.
• Lenders often require reporting and covenants (regular ledger exports, bank account monitoring).

Pros for manufacturers

• Confidential — keeps customer relationships intact.
• Usually cheaper if you have robust credit control.
• Gives flexibility to manage collections your way.

Cons

• Lenders require good systems and transparency (regular reporting).
• May not suit companies with weak collections or highly fragmented debtor bases.

Recourse vs non‑recourse explained

Recourse means your business remains liable if a customer doesn’t pay — the lender can seek repayment from you. Non‑recourse shifts certain bad-debt risk to the lender or factor but is generally more expensive and depends on the debtor’s credit profile. For manufacturers selling to large, creditworthy customers, non-recourse may be affordable; for many small-debtor bases, recourse is the common option.

Side‑by‑side decision checklist for manufacturers

Use this checklist to choose which product suits your factory.

• Choose factoring if you: need outsourced credit control, sell to many small or higher‑risk customers, or want to reduce in-house AR staff burden.
• Choose discounting if you: supply a small number of large, reputable customers, have strong internal credit control, and want confidentiality.

Three practical scenarios

1. Precision parts supplier to one OEM
One dominant buyer with strong credit — you want confidentiality and control. Best: invoice discounting plus contract finance to support long production runs.

2. Food-batcher selling to many retailers
High volume of small debtors and heavy admin — best: factoring to outsource collections and improve cash predictability.

3. Export manufacturer with mixed debtor risk
Large overseas invoices and variable credit quality — consider either factoring with export expertise or a hybrid solution; non-recourse options may be available for creditworthy foreign buyers.

Costs, metrics and what lenders will ask

Indicative figures (for illustration only):

• Advance rate: typically 70–90% depending on debtor credit quality.
• Service/discount fee: commonly 0.5%–3% per month (varies by provider and risk).
• Setup/administration fees: one-off, £250–£2,000 depending on complexity.

Key metrics lenders/brokers review:

• Turnover and gross margins.
• Debtor ageing and largest customers (credit quality).
• Annual invoiced sales and typical invoice size.
• Bank statements and historic collections performance.

Documents typically requested: recent accounts, aged debtor report, bank statements (3–6 months), copies of major invoices and sales ledger export from your accounting system.

Get a Free Eligibility Check — include an aged debtor report (optional) to speed matching to the right lenders/brokers.

How UK Business Loans helps manufacturers

We don’t lend. We match manufacturers to specialist lenders and brokers who understand your sector and can price invoice finance from £10,000 upwards. Our process is fast and focused:

1. Complete a short enquiry — it’s an information form, not an application.
2. We match your requirements and documentation with suitable lenders or brokers.
3. You receive a rapid response and compare offers — no obligation.
4. If you proceed, lenders will carry out their own checks and complete any required due diligence.

For more industry-focused solutions see our page on manufacturing business loans which explains wider options available to factories beyond invoice finance.

Get Quote Now — Free Eligibility Check

Compliance, checks & important notes

We are an introducer — not a lender — and we do not provide regulated financial advice. Submitting an enquiry is free and does not itself affect your credit score. Any individual finance offer is subject to the lender’s own eligibility checks and terms. Always read provider terms and ask questions about fees and recoveries before you sign.

FAQs

Will using factoring or discounting affect my customer relationships?

Factoring is usually disclosed and customers may be aware the factor collects payments; discounting is typically confidential and keeps collections in-house, preserving customer relationships.

How quickly can I access funds?

Providers can often advance funds within 24–72 hours after paperwork and ID checks are complete; full onboarding can take a few days to a few weeks depending on complexity.

What does “advance rate” mean?

The advance rate is the percentage of invoice value advanced to you up front (e.g. 70–90%). The balance is paid when the invoice is collected, less fees.

Is invoice finance expensive for manufacturers?

Costs vary by debtor quality, product (factoring vs discounting), and facility size. Discounting is often cheaper for firms with strong AR processes; factoring charges more but includes debtor management.

Can loss-making or growing manufacturers use invoice finance?

Yes — lenders focus on the quality of your debtors and invoiced sales rather than short-term profits. Strong, creditworthy customers make lenders more willing to provide facilities.

Our Business Finance Matching Process

Step 1

Complete Your Details

It takes just 1 minute on average to complete your business and contact details.

Step 2

We Match Your Business

With the best business finance broker or lender most suitable for your needs.

Step 3

You Get Free Quote + Advice

You receive a free quote along with complimentary expert financial advice.

It’s fast and free to get a quote from one of the UK’s leading finance brokers / lenders who will contact you directly with your quote/s.

Will checking eligibility affect my credit score?

No — submitting an enquiry through us does not affect your credit score. Lenders may carry out checks only if you progress to an application.

Final call to action & next steps

Ready to free up cash tied in invoices? Complete a short enquiry (it’s not an application) and we’ll match you to lenders and brokers who specialise in manufacturing. Most introductions are fast and there’s no obligation to proceed.

Get a Free Eligibility Check — Get Quote Now

Your details remain private and are shared only with lenders or brokers selected to match your needs. Offers are subject to lender terms and checks.

1. What’s the difference between invoice factoring and invoice discounting? — Factoring transfers collections and often notifies customers while discounting is usually confidential and lets you keep credit control.

2. Which invoice finance option suits UK manufacturers best? — Choose discounting if you supply a few large, creditworthy customers and have strong AR; choose factoring if you need outsourced collections or have many small/higher‑risk debtors.

3. How much of an invoice can I get up front? — Advance rates typically range from about 70–90% of the invoice value depending on debtor quality.

4. How quickly can manufacturers access funds from invoice finance? — Providers can often advance funds within 24–72 hours of verification, with full onboarding taking a few days to a few weeks.

5. Will invoice finance damage my customer relationships? — Factoring is usually disclosed and can change how customers pay, whereas discounting is typically confidential and preserves direct customer contact.

6. What fees should I expect for invoice discounting or factoring? — Expect one‑off setup/admin fees plus service/discount fees commonly around 0.5%–3% per month, and possible interest, utilization or collection charges.

7. Can loss‑making or fast‑growing manufacturers use invoice finance? — Yes — lenders mainly assess the quality of your debtors and invoiced sales rather than short‑term profits.

8. Will checking eligibility via UK Business Loans affect my credit score? — No — completing our free eligibility enquiry does not affect your credit score, although lenders may run checks later if you apply.

9. What documentation do lenders typically require for invoice finance? — Common requests include recent accounts, an aged debtor report, 3–6 months of bank statements, major invoices and a sales ledger export.

10. How does UK Business Loans help me get invoice finance for my factory? — We’re an introducer that matches you quickly to specialist lenders and brokers (from about £10,000 upwards) via a free eligibility check so you can compare offers without obligation.