Waiting 30–90 days for customers to pay strains cash flow. Invoice discounting and factoring let businesses convert unpaid invoices into immediate cash.
This guide explains both and their differences.
What is Invoice Discounting and Factoring?
In invoice discounting, a business borrows against its invoices while retaining control of collection. In factoring, the business sells its invoices to a factor who takes over collection, and sometimes the credit risk.
Both improve working capital by releasing cash tied up in receivables.
| Invoice discounting | Borrow against invoices; you still collect |
|---|---|
| Factoring | Sell invoices; the factor collects |
| Benefit | Faster cash flow |
| Cost | Discount/fee charged by the financier |
Frequently asked questions
What is the difference between factoring and invoice discounting?
In factoring you sell the invoices and the factor collects; in discounting you borrow against them and continue to collect yourself.
Who uses receivables finance?
Businesses with large credit sales and long payment cycles that need to free up working capital.