Throughout this article, you’ll have seen different terminology used to describe the various processes the umbrella term ‘invoice finance’ encompasses. There are too many of them to be unpacked here, so let’s focus on the two that matter most: invoice factoring and invoice discounting. While both facilities are means of securing credit against your unpaid invoices, there are a couple of key differences between them, and we’ll give you a hint as to the biggest: credit control. Invoice factoring When you engage an invoice factoring company for finance, they actually purchase your invoices outright. Due to the nature of this agreement, the lender effectively ‘owns’ your ledger and it allows them to deal with your clients directly. This means the lender is legally entitled to chase your clients up for payment, as well as handle the credit control of your business. Invoice factoring may also be recourse or non-recourse. Non-recourse agreements (also known as a form of bad debt protection) mean that, in the event that your customer is unable to pay (for instance, they become insolvent or declare bankruptcy), you won’t be eligible for paying back the loan. Again, this is only possible in a factoring agreement because the lender has ‘bought’ your invoices off of you. In other words, the responsibility for its ultimate repayment lies with them, not you. However, in an invoice discounting agreement, the finance provided against your invoice is only ever a loan. This means it always needs to be paid back! Invoice discounting If you to ensure your customers do not know that you’re utilising third-party finance, you should opt for an invoice discounting facility. Invoice discounting agreements allow you to retain the responsibility of chasing your unpaid invoices, but to keep a tighter leash on your business’ sales ledger, too. It’s also cheaper than factoring because you’re not paying for the additional credit control services that those companies provide. With invoice discounting, your customer will continue to pay you directly. Conversely, if you’re using a factoring company, your client will pay directly to the lender, and you’ll receive the remainder of the invoice’s value (minus the fees, of course) from the invoice provider themselves. And remember, invoice finance is an umbrella term. It encapsulates invoice factoring, invoice discounting, and several other related forms of finance, too.