What is the difference between Invoice Factoring and Invoice Discounting?
Invoice Factoring and Invoice Discounting are both forms of invoice finance. There are few differences between invoice factoring and invoice discounting though, and these are mostly around who controls and manages the accounts receivable ledger and whether your customers are aware of the lender.
With invoice discounting, you keep control of your accounts receivable ledger. That means you will be solely responsible for dealing with your customers to get your invoices paid. Some borrowers prefer this as they can keep control of their customer relationships. With invoice discounting, your customers will not know there is a lender in the background which is why it’s called confidential or non-disclosed invoice financing or invoice discounting.
Invoice factoring is when a business sells its invoices to a third party invoice factorer who then manages the ledger and collects the payments. A benefit of this for businesses is that responsibility for invoice collections is passed to the invoice factorer so the business can focus on other things. Because the invoice factorer provides these additional services, it can be more expensive than invoice factoring where collecting invoices is retained by the business. Given the customers are aware that the invoices have been sold to a factoring business, this is also known as disclosed type of invoice finance.