Invoice factoring vs invoice discounting

There are key differences between invoice factoring vs invoice discounting. These are mainly summarised as follows:

  1. Invoice factoring is disclosed. That means that the existence of the factoring facility between the business and the financier is made known to the end customer. Indeed, that end customer is notified of the assignment of the invoices present and future to the bank or finance company and payment of those invoices must be made by the end customer to the bank or finance facility rather than to the business direct.

Even if payment is made by the customer to the business direct, this does not discharge its liability once valid notice of assignment has been provided to it by the bank. In certain circumstances, payment must be made again by the end customer to the bank as failure to discharge the invoice in accordance with the notice of assignment provision.

  1. Invoice discounting is confidential. The end customer does not know about the existence of the finance facility. It makes payments into a bank account as directed by the business but this is in fact a trust account set up by the finance company into which payments are made and over which it has control.
  2. Sale ledger administration. In invoice factoring, the finance company or bank also carries out administrative sales ledger tasks such as running of the sales ledger and undertaking credit control functions. This is an important benefit for some small businesses who do not have their own in-house credit control functionality. However, due to the additional work carried out by the finance company, these types of facilities tend to cost more than the confidential facility.

In confidential facilities or invoice discounting facilities as they are known, the business taking advantage of the invoice discounting facility retains control of the sales ledger and its own credit control function. In addition, the facility remains entirely confidential from the end customer. Invoice discounting is a predominant form of invoice finance used in the country and is growing in popularity as every year passes.

There are further nuances between the two types of agreements. If you do need to know more about these then do contact one of our experts who can help you with this.

Contact the invoice finance firm of legal experts

Francis Wilks & Jones is the leading firm of industry experts. We have many years’ experience in all manner of invoice finance related claims. Contact one of our friendly advisers for your initial consultation. Whatever your invoice finance related question please contact us now and we can help you.