Glossary · UK
What is Invoice Discounting?
A confidential form of invoice finance where a business borrows against unpaid invoices while keeping control of its own credit control.
Full Definition
Invoice discounting is a form of asset-based finance similar to invoice factoring, but with one key difference: the business retains control of its own sales ledger and credit control, chasing payment from its own customers as normal, and the arrangement is usually confidential so customers are unaware a finance provider is involved. A lender advances a percentage of the value of outstanding invoices (often 80-90%), charging interest on the amount drawn plus a service fee, and the advance is repaid as customers pay their invoices into a trust account. Because the business keeps managing collections itself, invoice discounting is generally aimed at larger, more established companies with a robust in-house credit control function and reliable customer payment records, whereas invoice factoring -- where the finance company chases payment -- is more commonly used by smaller or newer businesses. Both forms of invoice finance let a business access cash from sales already made rather than waiting for standard payment terms, which can be significantly faster than arranging a traditional bank loan, though the ongoing cost needs to be weighed against the improvement in cash flow.