Invoice factoring vs invoice discounting
Both let you borrow against unpaid invoices. The difference is who collects the money. With invoice factoring, the lender chases your customers for payment, so your customers know you use finance. With invoice discounting, you chase them yourself and they usually don't know. Discounting usually costs less, but lenders often ask for a higher turnover (see the lender table).
The differences side by side
| Invoice factoring | Invoice discounting | |
|---|---|---|
| Who collects payment | The lender | You |
| Do customers know? | Yes, they pay the lender | Usually not |
| Cost | Higher, because the lender does the chasing (ABC Finance) | Lower |
| Minimum turnover | Often none published | £100,000 to £1m, depending on the lender |
| How much you get up front | Up to 85% to 95%, depending on the lender (see the lender table) | |
| Suits | Smaller firms with no one to chase payments | Firms that already chase payments well |
Cost: ABC Finance, checked 11 October 2026. Turnover and up-front figures: each lender's own website, checked 1 October 2026 (table below).
What each one costs
Both products have the same two main charges. A service charge pays for running the facility. A discount charge is interest on the money you have been advanced. UK broker ABC Finance gives these ranges for invoice finance in general:
- Service charge: usually 0.5% to 3% of invoice value.
- Discount charge: usually 1.5% to 3.5% a year above the Bank of England base rate, and up to 4% to 6% above it for smaller or riskier businesses.
- Set-up fee: £250 to £5,000, depending on the size of the facility.
ABC Finance does not give separate figures for factoring and discounting. It says factoring costs more because the lender does the chasing. Most lenders don't publish their prices at all, so the only way to compare is to get quotes. Our invoice finance costs guide goes through every fee.
A worked example
This uses example figures to show how the charges work. The discount charge is 6.5% a year: the Bank of England base rate of 3.75% plus a 2.75% margin, the margin ABC Finance uses in its own cost example. Your quote will differ.
| You send a customer an invoice on 45-day terms | £10,000 |
| The lender pays you 85% straight away | £8,500 |
| Discount charge: 6.5% a year on £8,500 for 45 days | £68 |
| Service charge: 1% of the invoice | £100 |
| The customer pays the full £10,000. You then receive the other 15%, less the charges | £1,332 |
| Total cost of funding this invoice | £168 |
Minimum turnover and up-front payment by lender
There is no single minimum turnover. These are the figures lenders publish on their own websites:
| Lender | Published minimum turnover | Paid up front | Source |
|---|---|---|---|
| Skipton Business Finance | None published (confidential discounting) | Up to 90% | skiptonbusinessfinance.co.uk |
| Lloyds Bank Commercial Finance | £100k | Up to 90% | lloydsbank.com |
| SME Invoice Finance | £100k (discounting) | Up to 95% | smeinvoicefinance.co.uk |
| NatWest Invoice Finance | £300k (discounting) | Up to 90% | natwest.com |
| Close Brothers Invoice Finance | £750k (discounting) | Up to 90% | closeinvoice.co.uk |
| Aldermore Invoice Finance | £750k | Up to 90% | aldermore.co.uk |
| HSBC Invoice Finance | £1m (discounting) | Up to 95% | business.hsbc.uk |
| Bibby Financial Services | None published | Up to 85% | bibbyfinancialservices.com |
| Ultimate Finance | None published | Up to 95% | ultimatefinance.co.uk |
Figures as published on each lender's own website, checked 14 October 2026. None of these lenders publishes its fees.
Who factoring suits
- You don't have anyone whose job is to chase payments.
- You are happy for customers to know you use finance.
- Your turnover is below what discounting lenders ask for.
It is a weaker fit if your customers would react badly to a lender contacting them, or if your margins are too thin to cover a higher service charge.
Who invoice discounting suits
- You already chase payments well, and your customers mostly pay on time.
- You want to keep the finance private from customers.
- Your turnover meets the lender's minimum.
It is a weaker fit if you have lots of late payers, because the lender relies on your credit control. For the private version in more detail, see confidential invoice discounting.
Which is used more in the UK?
Discounting, by value. In 2017, invoice discounting made up £289.5bn of the £311.0bn of client sales funded by UK Finance members, about 93%. By number of businesses the split was close: In the same report, 16,519 businesses used domestic invoice discounting and 15,291 used domestic factoring at the end of 2017. The discounting clients were much bigger. Domestic discounting funded £262.4bn of client sales in the year, about £15.9m per client, against £19.6bn for domestic factoring, about £1.3m per client. These are 2017 figures, the latest year we have checked.
Two other choices you will be asked about
Recourse or non-recourse. With recourse, you take the loss if a customer never pays. With non-recourse, the lender takes that risk for an extra fee. ABC Finance puts bad debt protection at 0.3% to 1.0% of invoice value. See recourse vs non-recourse.
Whole ledger or single invoices. Factoring and discounting normally cover all your invoices. If you only need to fund one or two, look at selective invoice finance. You can also try our factoring or discounting filter.
Founder & Managing Director, Muswell Rose, founder and PSC of Best Business Loans Ltd
Adam is the founder and managing director of Muswell Rose and a founder of Best Business Loans Ltd, the company behind Market Invoice. He spent over three years as managing director of Penny, a UK invoice finance business, and his career runs through insurance, mortgages, commercial finance and fintech lending. He writes the Market Invoice library.
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