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Invoice Factoring vs. Invoice Discounting

They’re the two most common forms of invoice finance — but how can you choose between invoice factoring and invoice discounting?

Differences between discounting and factoring

There are many differences between discounting and factoring, but the main difference is credit control. You get credit control services included as part of invoice factoring, but it’s not included with discounting.

Here are some of the main differences invoice factoring and discounting:


Invoice discounting is often called ‘confidential invoice discounting’. This is because you’ll continue to deal with your customers in the usual way, and they won’t know you’re using a finance facility.

Factoring, on the other hand, means your invoice finance provider will deal directly with your customers — so they’ll know you’re using invoice finance.

Some companies might not want their customers to know they’re using working capital finance, for example because it might make negotiating a good deal with suppliers more difficult — so confidentiality is an important reason some companies choose invoice discounting.

However, there are variations of invoice factoring that can allow you to keep confidentiality, or retain control over your sales ledger.


CHOCS stands for Client Handles Own Collection Services, and it’s sometimes known as Client Handles Own Credit Control Services (CHOCCS).

The two terms mean more or less the same thing: this is a type of factoring where you retain control of your sales ledger, meaning you can maintain and develop relationships with your customers. This is useful if your business is not eligible for invoice discounting, but you want to retain control of your sales ledger.

Confidential Factoring

Confidential factoring is where the lender handles your credit control, but does so in your name. In other words, your customer will think they’re dealing with you directly, when in fact the lender is handling the sales ledger. This is another good solution for businesses that want to keep confidentiality.


Risk is a critical factor in any type of business loan, and factoring and discounting are no different. Without credit control, the lender has less control over whether your customers will pay on time (or pay at all), which means they’re taking on more risk by advancing you cash based on these invoices.

For this reason, discounting is traditionally used by bigger companies with higher turnover and creditworthy customers, whereas invoice factoring is commonly used by smaller firms.


For some businesses, particularly smaller operations that don’t have a finance department, the credit control services included with factoring are a major benefit because they free up time to focus on the business, rather than dealing with late payments. On the other hand, these additional services require more effort from the lender, so factoring is usually slightly more expensive than invoice discounting.


Flexibility is one of the main things to consider when choosing between invoice factoring and discounting.

With invoice discounting, the lender will usually require you to finance your entire debtor book (i.e. all of your current outstanding invoices). This is fine for many businesses, but others will prefer to finance specific invoices, which is easier to do with factoring.

There’s also a form of invoice finance called selective invoice finance or ‘spot factoring’, which allows you to choose single invoices, specific clients, or specific projects to fund.

Selective invoice finance and spot factoring are difficult to secure if your company is small or hasn’t been trading long — but can be more flexible if your cash flow varies and you’re eligible.


Some business owners like having credit control services, because it frees up their time and late payments are less likely. Others prefer to continue dealing with customers themselves. Generally speaking, choosing between factoring and discounting will depend on your business’s size and turnover, whether you want credit control, and whether you want the facility to remain confidential or not.

There’s no right or wrong answer — whatever finance you choose, it’s about getting what suits your business.