Invoice Discounting vs Invoice Factoring

6th August 2024

Invoice Discounting and Invoice Factoring are the two most common types of Invoice Finance. If you're trying to decide which one is right for your business, Skipton Business Finance is here to help. Below, we will explain their similarities and main differences in more detail.

The goal is to help you find your business’s most suitable finance solution.

Confidentiality

Invoice Discounting is often called 'Confidential Invoice Discounting' because your customers won’t know of our involvement; you handle everything as usual. With Factoring however, we deal directly with your customers, so they will know you're using Skipton Business Finance.

Some businesses prefer confidentiality to maintain good relationships with suppliers, making Invoice Discounting a better option for you.

Visibility and Control

With Invoice Factoring, Skipton Business Finance handles your credit control, we chase customer payments for you. This can save you time and money.

With Invoice Discounting, you collect payments yourself. Since you control the process, your customers won't know about our arrangement.

Flexibility

When choosing an Invoice Finance solution, flexibility is key.

With Invoice Discounting, you usually need to finance all your outstanding invoices. This works for many businesses, but some prefer to finance specific invoices, which is easier with Factoring. With Invoice Factoring, you receive advance funds for specific invoices, and any adjustments to these funds are made when you need them. Just call your dedicated Relationship Manager and they will be able to assist you with anything you need.

Cost

The costs of our Invoice Finance facilities depend on each business, we don’t offer a “one size fits all” product. We tailor each facility to the individual requirements of each business. 

However, some general information that we can provide is that for smaller businesses, especially the ones who might not have a finance department, the credit control that we can provide, if you choose Invoice Factoring, can be a huge advantage. It allows more time for you to concentrate on your business instead of handling overdue payments. However, this means that we need to work harder for you, therefore Invoice Factoring can be slightly more expensive than Invoice Discounting.

Risk and Responsibility

Invoice Finance is considered a secure method of business financing, but as with any financial arrangement there are risks involved.

Invoice Factoring is perceived as less risky than Invoice Discounting. With Factoring, we oversee credit control and collection procedures, this lowers the risk because we make sure your customers pay. Oppositely, Discounting could be higher risk because businesses lack direct interaction with their debtors, you will have to make sure customers pay. This facility is often preferred by larger companies.

Among the different types of invoice financing, the two most common are Invoice Factoring and Invoice Discounting. Both give you quick access to much needed working capital, but it's important to understand their differences to choose the right one for your needs. And with our dedicated Relationship Manager, we will be by your side every step of the way.

If you would like to learn the advantages and disadvantages on Invoice Discounting follow this link here, similarly for Invoice Factoring.