What is the main difference between factoring and discounting?

The core difference is who manages your sales ledger and credit control. With invoice factoring, the finance provider usually sends statements and chases payments on your behalf, so customers generally know a third party is involved. With invoice discounting, you retain control; some facilities may be confidential, but verification, notice or contact can apply under the agreement.

Can a small business use invoice discounting?

Providers assess turnover, ledger quality and internal credit control rather than applying one universal threshold. Smaller businesses may have fewer options, while some providers may consider them where controls and debtor quality fit. Factoring or selective funding may be alternatives.

Is invoice factoring bad for customer relationships?

Not necessarily. Reputable factoring providers handle credit control professionally, and many businesses find that payment times actually improve because the provider follows a consistent, systematic process. The key is choosing a provider with a good track record and being transparent with your customers about the arrangement upfront.

Can I switch from factoring to discounting?

Yes. Many businesses start on factoring and transition to invoice discounting as they grow and build internal credit control capability. Your broker can manage the transition to a new facility when your business is ready, ensuring there is no gap in funding.

What turnover do I need for invoice discounting?

Most mainstream lenders require a minimum annual turnover of £500,000 for confidential invoice discounting. Some specialist lenders will consider businesses from £250,000 turnover if internal credit control processes are strong. For businesses below these thresholds, confidential factoring or selective invoice finance are often appropriate alternatives.

Invoice Finance Explained

Invoice factoring vs invoice discounting: which is right for your business?

Both products unlock cash from unpaid invoices, but they work differently and suit different business profiles. This guide explains the key differences, costs, and considerations, plus a 5-question decision tool to give you a personalised recommendation.

Find my best option Speak to an adviser

The core difference at a glance

Who manages credit control?

Factoring

The finance provider

Discounting

You (internally)

Do customers know?

Factoring

Yes — disclosed

Discounting

No — confidential

Typical turnover requirement

Factoring

£100,000+

Discounting

£500,000+

Side-by-side comparison

Invoice Factoring

Disclosed to customers

Advantages

Provider manages your sales ledger
Professional credit control included
Less internal admin burden
Suitable for businesses of any size
Can improve payment times significantly
Eligibility varies by provider and ledger

Considerations

Customers know a third party is involved
Slightly higher service fee than discounting
Less control over customer communication

Best for

Growing businesses, SMEs under £500k turnover, businesses without a dedicated credit controller.

5-Question Decision Tool

Should you use factoring or discounting?

Answer 5 quick questions and we'll tell you which invoice finance product suits your business, with a score breakdown.

Question 1 of 50% complete

What is your annual turnover?

Discounting usually needs robust controls; provider criteria vary.

How do the costs compare?

Both products carry two fee components. Discounting is typically cheaper but requires more internal resource.

Fee component	Factoring	Discounting
Service fee (% of invoice)	0.75% – 3.0%	0.2% – 0.5%
Discount rate (annual, on funded amount)	2% – 6% above base	2% – 5% above base
Advance rate	70% – 95%	80% – 95%
Minimum monthly charge	Often applies	Often applies
Credit control included	✓ Yes	✗ No (you manage)

Indicative rates only. Actual costs depend on sector, customer quality, and debtor book.

Invoice Finance Overview

Full invoice finance guide: costs, calculator & more

Read the complete guide including a live cashflow calculator, sector advice, and full FAQ library.

Invoice finance guide

Factoring Discounting Costs and fees

Who you could speak to

Graham Nash

Commercial Finance Director

Business loans, cash flow and wider commercial funding

Profile

Arran Turner

Managing Director

General commercial finance and how Sorbus works

Profile

STEP 1
A conversation with a broker
You talk to a real Sorbus broker about the business, the purpose and what is affordable. No application at this stage.
STEP 2
Credit placement
If you choose to go further, we prepare the case and decide which lenders on our panel of 150+ are worth approaching.
STEP 3
Lender assessment
The lender, not Sorbus, underwrites and makes the credit decision. Approval is never guaranteed.
STEP 4
Documentation
If a lender offers terms and you accept, we help coordinate agreements and payout paperwork with you.

Every step after the first is optional. You can stop after the conversation. Sorbus is a broker, not a lender.

Client journey

Explore real client journeys

Read how real businesses approached a funding goal, what Sorbus arranged and what happened next.

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Enquire about Invoice Finance — Factoring vs Discounting

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In almost all circumstances we do not charge a broker fee. Should a broker fee be chargeable you will be made aware clearly in advance and it will be agreed in writing before you proceed. Read our Initial Disclosure.

Sorbus Finance acts as a credit broker/introducer, not a lender. We can introduce you to lenders on our selected panel and do not search the whole market. We do not provide advice or a recommendation. Lenders determine eligibility, pricing and final terms. We may receive commission from a lender; the amount and method can vary and may affect what you pay. Read our Commission Disclosure and Complaints Procedure.

Factoring and discounting: questions answered

Common questions from UK businesses comparing their invoice finance options.

Invoice discounting is generally cheaper than invoice factoring because the lender is not providing the credit control service. Factoring typically costs 0.75–3% of invoice value in service fees, while discounting service fees are lower at around 0.2–0.5%. However, both carry a discount charge (interest on the cash advanced). For businesses with strong internal credit control, discounting often represents better value.

Ready to unlock your invoices?

Whether factoring or discounting is right for you, Sorbus Finance will compare suitable lenders on our panel, free and without obligation.

01246 383500 Invoice finance overview

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