Invoice Factoring: Glossary
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Invoice Factoring: Glossary

A factor advances 70 to 90% of an invoice and then chases your customer for the money itself. That is the real difference from invoice discounting, where credit control stays with you and the finance stays out of sight.

Mike Smith
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Mike Smith
Updated on 13 October 2026
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Invoice factoring is a form of invoice finance where a business sells its outstanding invoices to a factoring company (the factor) in exchange for a cash advance of up to 85–90% of the invoice value, usually within 24 hours. The factor then collects payment directly from the business’s customers. When the customer pays, the factor releases the remaining balance minus fees.

How It Works

  1. Business raises an invoice to its customer
  2. Business sells the invoice to the factor
  3. Factor advances up to 85–90% of the invoice value, usually within 24 hours
  4. Factor manages credit control: chasing the customer for payment in its own name (disclosed factoring) or the business’s name (confidential factoring)
  5. Customer pays the factor
  6. Factor releases the remaining balance, minus factoring fee and discount charge

Key Features

  • Credit control outsourced: The factor manages collections, which saves internal resource but means customers know the business uses a factor (in disclosed factoring)
  • Bad debt protection: Non-recourse factoring includes protection against customer insolvency
  • Suitable for: B2B businesses with multiple invoices, extended payment terms, or resource constraints in credit control

Invoice Factoring vs Invoice Discounting

The key difference is who manages collections. In factoring, the factor manages credit control. In invoice discounting, the business retains its own credit control and collection process: the finance is typically invisible to customers.

  • Invoice discounting: finance against invoices where the business retains credit control
  • Advance rate: the percentage of invoice value released up front
  • Recourse factoring: the business remains responsible for invoices its customers do not pay
  • Non-recourse factoring: the factor absorbs bad debt risk