Invoice finance vs factoring: what is the difference?

The shared mechanic

Every receivables facility works the same way at its core: a funder advances a percentage of an approved invoice — typically 80% to 90% — on issue, and releases the balance less charges when your customer pays. What varies is the wrapper around that mechanic.

Factoring

In a factoring arrangement the funder purchases the invoice and takes over collections. Your customers are notified and pay the funder directly. Because the funder runs the sales ledger, factoring suits smaller businesses without a credit control function, and underwriting leans on the quality of your customers rather than your own balance sheet.

The trade-off is visibility: your customers know a funder is involved, and the funder's collections style becomes part of your customer relationship.

Confidential invoice discounting

Discounting keeps collections with you and is not disclosed to customers. It requires demonstrable credit control, reliable reporting and usually a minimum turnover, so funders reserve it for established ledgers. Pricing is generally lower than factoring because you carry the administrative burden.

Selective and single-invoice finance

Selective facilities fund individual invoices rather than the whole book. They suit lumpy contract businesses that need cash against one large invoice without committing the entire ledger. Pricing per invoice is higher, but there is no whole-turnover commitment and no minimum-fee drag on quiet months.

Recourse and non-recourse

With recourse, if your customer does not pay, the advance is repayable by you. With non-recourse, the funder — usually backed by credit insurance — carries approved buyer insolvency risk. Non-recourse costs more and can support true-sale accounting treatment, taking the receivable off your balance sheet. Read the definition of a credit event carefully: non-recourse rarely covers a dispute.