If you’ve ever Googled ways to improve your business’s cash flow, you’ve probably come across the terms invoice finance and factoring. They’re often used interchangeably, which can be confusing especially when you’re trying to decide which funding option is right for your business.
Let’s clear things up.
What Is Invoice Finance?
Invoice finance is a broad term for funding solutions that allow businesses to unlock cash tied up in unpaid invoices. Instead of waiting 30, 60, or even 90 days for customers to pay, you get most of the invoice value upfront from a lender — helping you smooth out cash flow and invest in growth.
There are two main types:
Both involve selling your invoices to a finance provider, but how they work behind the scenes is quite different.
What Is Factoring?
Factoring is a type of invoice finance where the lender takes a more hands-on role. They don’t just advance you the funds — they also manage your sales ledger and chase payments from your customers.
This means:
Invoice Finance vs. Factoring: What’s the Difference?
Here’s a quick comparison to help you see the distinction:
|
Feature |
Invoice Discounting |
Factoring |
|
Control over collections |
You keep control |
Lender manages collections |
|
Customer awareness |
Usually confidential |
Customers are notified |
|
Credit control |
In-house |
Outsourced |
|
Best for |
Medium to large businesses |
Small to medium businesses |
So, while factoring is a form of invoice finance, not all invoice finance is factoring.
Which Option Is Right for You?
Choosing between invoice discounting and factoring depends on:
If you have a strong finance team and want to keep things discreet, invoice discounting might be the better fit. If you’d rather outsource credit control and focus on running your business, factoring could be ideal.
Invoice finance — whether through factoring or discounting — can be a game-changer for businesses dealing with long payment terms. It’s not about taking on debt; it’s about unlocking the value of work you’ve already done.
Still unsure which route to take? That’s where a broker comes in. I help SMEs find the right invoice finance solution for their needs — without the jargon, and without wasting time.
We offer our invoice finance in Leeds, York and surrounding areas – get in touch with our team today!