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Simply put, invoice discounting or factoring is where a business borrows money from a lender who advances the business cash amounts based on their unpaid sales invoices.
Although the process is similar, there is one key difference between invoice discounting and factoring.
The Difference between Invoice Discounting and Factoring
The main difference between invoice discounting and factoring is that with invoice discounting you retain control of your sales ledger function so are responsible for chasing debts, as normal.
However, with invoice factoring, the factorer takes responsibility for chasing up debts and managing the sales ledger.
For this reason, invoice factoring should be considered carefully because if your business has sensitive client relationships, being chased by a third party may not be suitable.
Updated 19 April 2019
Anita is a Chartered Accountant with over a decade of experience taking self employed business owners from financially confused to business savvy.
She is the creator of the ‘Go Self Employed’ website, which her corner on the internet where she makes self employment less terrifying.