How Invoice Discounting Differs from Factoring

It's important to note that invoice discounting and factoring are not the same thing, although they are often used interchangeably. While both methods involve selling invoices to a thirdparty finance company, there are some key differences between the two. With invoice discounting, the business retains control over the collection of payments from their customers. The finance company simply advances funds against the value of the invoices, and the business is responsible for collecting payment from their customers and paying back the finance company, along with any fees.

With factoring, the finance company takes on the responsibility for collecting payment from the business's customers. This can be a more appealing option for businesses that do not have a dedicated accounts receivable department, or who want to outsource the collection process. Additionally, factoring can be a more expensive option than invoice discounting, as the finance company takes on more risk and responsibility for collecting payment from customers. Choosing between invoice discounting and factoring will depend on the specific needs and preferences of each business. It's important to carefully evaluate the pros and cons of each option before making a decision.