If you supply goods or services on credit terms, invoice finance lets you draw cash against money your customers already owe you, instead of waiting 30, 60 or 90 days to be paid. The two best-known forms are invoice factoring and invoice discounting. They sound similar and are often confused, but they work quite differently.

Invoice factoring

With factoring, a finance provider advances you a percentage of an invoice's value, typically 80 to 90 per cent, within a day or two. The provider also takes over your sales ledger and collects payment directly from your customers. When the customer pays, you receive the balance, less the provider's fees.

Because the provider does the chasing, your customers know a third party is involved. This is called disclosed finance. Factoring suits smaller or growing businesses that would rather hand over credit control than run it in-house.

Invoice discounting

Discounting works on the same advance principle, but you keep control of your own sales ledger and collect payment yourself. The arrangement is usually confidential, so your customers need never know you are using finance. The trade-off is that you stay responsible for chasing late payers.

Discounting is generally offered to more established businesses with a proven track record and solid collection processes, because the provider relies on you to bring the money in.

The main differences at a glance

  • Who collects? Factoring: the provider. Discounting: you.
  • Do customers know? Factoring: usually yes. Discounting: usually no.
  • Who it suits: Factoring suits smaller firms wanting credit control off their plate; discounting suits larger firms with strong in-house collections.
  • Cost: Factoring usually costs more, because it bundles in a credit-control service.

Both are typically offered on a whole-ledger basis, meaning you commit your entire sales book and often sign up to minimum terms and minimum fees.

Recourse and non-recourse

Either type can be recourse (if your customer never pays, you repay the advance) or non-recourse (the provider carries the bad-debt risk, for a higher fee). Always check which you are signing up to. For more on this, see invoice finance jargon explained.

A more flexible option: selective invoice finance

You do not have to finance your whole ledger. Selective, or single-invoice, finance lets you raise cash against one invoice at a time, with no obligation to fund the rest and no tying up your entire sales book. For a subcontractor who just needs to bridge the gap on one certified payment, it can be far simpler and cheaper than a full factoring facility.

This is the model Lintl is built around: we advance funds against a single, verified construction invoice, so you get paid in minutes rather than months, and only when you actually need it.

Invoice finance is not a loan; you are accessing money your customers already owe you. The right structure depends on your size, your customers and how much control you want to keep. Compare the all-in cost and the flexibility, not just the headline rate.