Invoice discounting is a form of invoice finance where a business borrows against its outstanding invoices while retaining control of its own credit control and customer collections. The finance is typically invisible to customers: they continue to pay the business directly, not the lender.
How It Works
- Business raises invoices to its customers
- Business submits invoice details to the discounting lender
- Lender advances typically 70–90% of the invoice value
- Business continues to manage its own credit control and chases customers for payment
- When customers pay (into a trust account controlled by the lender), the lender releases the remaining balance minus fees
Key Features
- Confidential: Customers do not know the business is using invoice finance: they pay as normal
- Credit control retained: The business manages its customer relationships and collections
- Requires internal capability: The business must have a competent credit control function
- Typically for larger businesses: Invoice discounting is generally available to more established businesses with higher turnover than selective or factoring products
Invoice Discounting vs Invoice Factoring
| Feature | Invoice Discounting | Invoice Factoring |
|---|---|---|
| Credit control | Business manages | Factor manages |
| Customer visibility | Confidential | Disclosed (typically) |
| Business size | Larger, established | Smaller, or those needing outsourced credit control |
Related Terms
- Invoice factoring: invoice finance where the lender manages credit control
- Confidential invoice discounting (CID): another term for invoice discounting where confidentiality is emphasised
- Whole-ledger facility: invoice finance covering all invoices, vs selective finance on individual invoices