ABSTRACT
The main difference is who collects the money from the Sales Ledger. With a factoring arrangement, the factor collects it, and so customers know that their supplier is using a factor. With invoice discounting, the supplier collects the money, and so customers are unaware that money has been borrowed against the Sales Ledger. Therefore, invoice discounting is often referred to as a ‘confidential’ service. Factoring costs a little more than invoice discounting, reflecting the more intensive service provided, but will almost certainly be more cost-effective than employing Sales Ledger and credit control staff. It may also be an effective way of counteracting the bullying tactics of big businesses over timely payment! Another difference is in the size of turnover required. Some factors will accept a turnover of as little as £50,000 a year, but for invoice discounting it needs to be at least £250,000.
