What is Invoice Discounting?
Invoice discounting is a form of invoice finance that allows a business to borrow against its unpaid invoices while keeping control of its own sales ledger and credit control. A funder advances typically 85–90% of the invoice value as soon as you raise an invoice, with the balance, less fees, released when your customer pays.
It is usually confidential, meaning your customers are not made aware that a funder is involved. This is why invoice discounting is often preferred by more established businesses with robust credit controls in place, who want the cash-flow benefits of invoice finance while keeping their customer relationships and collections in-house.
As with Invoice Factoring, the funder will take out a legal charge known as a debenture against your invoices, allowing them to collect their money in the unfortunate event your business ceases trading.
How Invoice Discounting Works
- You invoice your customer as normal, on your usual payment terms.
- You upload the invoice (or your sales ledger) to the funder’s online platform.
- The funder advances up to 85–90% of the invoice value, often within 24 hours.
- Your team chases payment as usual, and your customer pays into a trust account in your name.
- The funder releases the balance, less its fees.
Because the facility is linked to your sales ledger, the funding available grows automatically as your turnover grows.
Invoice Discounting vs Invoice Factoring
| Invoice Discounting | Invoice Factoring | |
|---|---|---|
| Who runs credit control? | You | The funder |
| Do customers know? | Usually not (confidential) | Usually yes (confidential options exist) |
| Typical advance | 85–90% | 85–90% |
| Best suited to | Established businesses with in-house credit control | Newer or growing businesses wanting collections handled for them |
| Cost | Usually lower | Usually higher (credit control included) |
If you don’t have your own credit control team, invoice factoring may be a better fit. If you only need occasional funding, see single invoice finance.
How Much Does Invoice Discounting Cost?
Invoice discounting usually has two main costs:
- A monthly service fee – the minimum fee the funder requires to make the facility financially viable, often set as a percentage of turnover.
- A discounting fee – the interest charged only on the funds you actually draw, similar to an overdraft.
Some facilities also include optional bad debt protection, insuring you against customers who fail to pay. The exact pricing depends on your turnover, the quality of your customers, your payment terms and your credit control history.
Try it first: certain funders on our lending panel will allow you to trial an invoice discounting facility for up to six months. You can leave at any time with no exit fee, and at the end of the trial you would switch to a rolling contract.
Who is Invoice Discounting Suitable For?
Invoice discounting is usually a good fit if your business:
- sells to other businesses (B2B) on credit terms of 30–90 days
- has an established trading history and steady turnover
- has reliable in-house credit control
- wants to keep its finance arrangements confidential
- needs working capital that grows with sales – to take on bigger contracts, fund stock or pay suppliers early
It is not suitable for businesses selling to consumers, or where invoices are raised before the work is done.
Confidential Invoice Discounting
Confidential invoice discounting is the most common form. Your customers pay you as normal and never deal with the funder, so your relationships stay exactly as they are. Some funders also offer disclosed invoice discounting, where customers are notified, which can mean slightly better terms or easier approval for some businesses.
Why Use a Broker for Invoice Discounting?
Invoice discounting providers vary widely in pricing, contract terms, minimum turnover, sector appetite and security requirements. With eight years’ experience in invoice finance and access to a wide panel of funders – from major banks to specialist independent lenders – Wise Factoring compares the market for you and negotiates terms, including trial periods and no-exit-fee options, so you don’t have to approach funders one by one.
