Factoring vs Invoice Discounting
The main difference between invoice factoring and invoice discounting is who manages credit control. With factoring, the finance provider collects payment from your customers directly. With invoice discounting, you retain full control of collections and your customers typically do not know you use finance. Factoring suits smaller businesses (£50k+ turnover) while discounting is usually available from £500,000 turnover.
Quick Reference
Direct Answer
The key difference between factoring and invoice discounting is who manages credit control. With factoring, the provider collects from your customers. With discounting, you retain control and your customers do not know you use finance.
Summary
Invoice factoring means the provider manages credit control and contacts your customers (from £50k turnover, 0.5-3% fee). Invoice discounting lets you retain control confidentially (from £500k turnover, 0.3-0.5% fee). Discounting accounts for 85% of the UK market by volume.
This Page Covers
Full comparison of invoice factoring vs invoice discounting including credit control, cost, minimum turnover, advance rates, contract terms, and which suits different business sizes
Not Covered Here
Detailed cost breakdowns (see costs guide), individual provider reviews, confidential invoice discounting specifics
Side-by-Side Comparison
| Feature | Invoice Factoring | Invoice Discounting |
|---|---|---|
| Credit control | Provider manages | You manage |
| Customer aware? | Yes — provider contacts them | No — confidential |
| Min turnover | £50,000 | £500,000 |
| Service charge | 0.5-3% | 0.3-0.5% |
| Advance rate | 70-90% | 75-90% |
| Best for | Smaller businesses, startups | Established businesses with credit team |
| Contract length | 12-24 months typical | 12-24 months typical |
| UK market share | 15% | 85% |
When to Choose Factoring
- Your turnover is below £500,000
- You don't have a dedicated credit control function
- You want help chasing late-paying customers
- You're a startup or early-stage business
When to Choose Discounting
- Your turnover exceeds £500,000
- You want your customers to remain unaware of your financing
- You have established credit control processes
- You want the lowest possible cost
Oliver Mackman
Director, Market Invoice
Oliver leads Market Invoice's editorial and comparison research. With a background in UK commercial finance, he oversees provider analysis, rate verification, and industry reporting across all verticals.
Last reviewed: 5 April 2026