Factoring & Invoice Discounting in the UK

How does Invoice Discounting work?

With Invoice Discounting, you raise an invoice to your customer as per usual on your normal company stationery, send it to your customer and then present the finance provider with a copy to authorise payment. Typically, 75-85% of the invoice value can be released by the finance provider subject to individual circumstances.

Invoice Discounting differs to Invoice Factoring in one distinct way, in that the collection of payment on your outstanding invoices remains your obligation. With Invoice Factoring, the Factoring provider will arrange for their in-house credit control team to contact your customers. With Invoice Discounting, you are still in full control of your credit control and any payment collection from your customers.

When your customer pays the outstanding invoice, the finance provider (i.e. Invoice Discounter) will then require that you pay the outstanding balance for that invoice by paying the monies into your own client account with the Invoice Discounter. Once the funds have cleared, they will send you the ‘balance owed’, less their fee. The balance owed is the margin (typically 15-25%) of the invoice that is not financed. The monies owed on the outstanding invoice will always be paid by the debtor to the Funder, at which point they will release the remaining value on the invoice .

If your business already practices sound credit management, and has the staff and systems to generate rapid customer collections, the factor’s skills may not necessarily be needed and so Invoice Discounting may be the better alternative. Invoice Discounting turns debtors into cash faster, and generates the maximum working capital from your sales ledger balance.


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