Recognition
Growing faster than your credit-control team can keep up
If chasing payment is eating time you don't have, or you don't have an in-house collections function at all, that's usually the signal that factoring, not confidential discounting, is the right version of invoice finance.
Why it happens
Someone has to do the collecting
Every invoice-finance facility needs collections to happen somewhere. Discounting keeps that job with you, invisibly. Factoring hands it to the lender.
Where this fits
One of three versions of Invoice Finance
Factoring sits alongside confidential discounting and selective invoice finance as one of the three ways to structure the same underlying facility. See Invoice Finance for the full picture and how to choose between them.
Specialist insight
Why it costs more than invoice discounting
What the lender takes on under factoring is real work: chasing payment, managing disputes and running a credit-control function. That's why factoring usually costs more per pound advanced. If you already run a competent credit-control function in-house, you're paying for something you don't need. If you don't, the service genuinely earns its cost.
In practice, businesses often assume factoring is the "beginner" option and discounting the "advanced" one that you graduate to once collections are sorted. It's really a service decision, not a maturity ladder. A well-run five-person business with tight credit control can outgrow the need for factoring long before a much larger one does.
Decision helper
What typically fits
- Businesses without an established in-house credit-control function.
- Businesses growing quickly enough that collections capacity hasn't kept pace.
- Businesses comfortable with customers knowing a finance arrangement is in place.
Alternatives and limitations
If your customers would react badly to a third party contacting them for payment, or you already have solid in-house collections, disclosed factoring may cost more than it's worth. Confidential invoice discounting is usually the better starting point in that case. And if you already have a facility in place and need more headroom rather than a different structure, that's a different question: see Credit Lines.
