# What is invoice discounting and how does it differ from factoring?
Invoice discounting is a confidential financing arrangement where businesses borrow against their unpaid invoices while maintaining full control of sales ledger and customer relationships. Key differences from factoring: INVOICE DISCOUNTING - Confidential (customers don't know about arrangement), business manages own credit control and collections, suitable for established businesses with strong admin, typically lower fees, requires minimum turnover (£250,000-500,000+), business retains customer relationships. INVOICE FACTORING - Customers know about arrangement, finance company handles collections, suitable for businesses wanting to outsource credit control, includes bad debt protection options, available to smaller businesses, finance company manages customer communication. How invoice discounting works: (1) Business continues invoicing customers normally; (2) Copies of invoices submitted to finance company; (3) Finance company advances 80-95% of invoice value; (4) Business collects payment from customers; (5) Payments forwarded to finance company; (6) Finance company releases remaining balance minus fees. Costs: 0.5-3% of turnover plus interest on funds used. Best for: established businesses (3+ years trading), companies with strong customer base, businesses wanting confidential funding, firms with good credit control systems. Benefits: improved cash flow, business maintains customer control, confidential funding, flexible facility that grows with sales.
## Key Takeaways
- Invoice discounting is a confidential financing arrangement where businesses borrow against their unpaid invoices while maintaining full control of sales ledger and customer relationships.
- Key differences from factoring: INVOICE DISCOUNTING - Confidential (customers don't know about arrangement), business manages own credit control and collections, suitable for established businesses with strong admin, typically lower fees, requires minimum turnover (£250,000-500,000+), business retains customer relationships.
- INVOICE FACTORING - Customers know about arrangement, finance company handles collections, suitable for businesses wanting to outsource credit control, includes bad debt protection options, available to smaller businesses, finance company manages customer communication.
## Related Topics
- invoice discounting
- confidential invoice finance
- invoice discounting vs factoring