What is the Difference Between Invoice Discounting and Factoring?

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.

Anita is a Chartered Accountant, turned blogger and creator of the ever popular free Go Self Employed Email Mini Course, which has been completed by hundreds of attendees all over the UK. Using her 10 years experience in accounting, tax and operations for Small Businesses, Anita is on a mission to make finance simple for the self employed, so they can stop stressing about tax & finances and focus on building profitable businesses which will give them the lifestyle they dream of.