Factoring and invoice discounting fund the same invoices, but differ on who collects from the buyer
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Ossiano Guides · Getting paid
In factoring the finance provider usually runs the sales ledger and collects, while in invoice discounting the seller keeps the ledger and the buyer may never know the invoices were sold.
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01 · Same asset
Both products turn a sold invoice into cash before the buyer pays
Both and sell invoices to a finance provider at a discount. The Global Supply Chain Finance Forum (GSCFF) defines factoring as a form of receivables purchase in which sellers sell their receivables, represented by outstanding invoices, at a discount to a finance provider.
The GSCFF files invoice discounting under , in which sellers sell individual or multiple receivables to a finance provider at a discount, and lists "Invoice Discounting" as a synonym. UK Finance describes the core asset in invoice finance as the debtor book, as represented by the business's invoices.
"The most widely known types of invoice finance are factoring and invoice discounting"
UK Finance, Invoice finance and asset-based lending, undated
The cash arrives in two parts. In factoring, after verification the finance provider advances a percentage of the invoice value, usually around 80%, according to the GSCFF. A court record shows the same pattern in invoice discounting. In Close Invoice Finance Ltd v Watts, decided by the Court of Appeal on September 2, 2009, Close and Haydon entered into a Discounting Agreement dated August 23, 2005. Haydon imported and distributed window fashions. Close was to purchase the receivables for their face value and pre-pay 80 percent of the value of each receivable.
Figure 1 · Interactive
Factoring and invoice discounting, side by side
Read across a row to compare. Tap a term for a quick explainer.
Sources: Global Supply Chain Finance Forum, Standard Definitions, factoring and receivables discounting pages, revised October 31, 2024; FCI, What is factoring.
02 · Who collects
The split is operational: who runs the sales ledger and chases payment
In factoring, the finance provider is usually responsible for managing the debtor portfolio and collecting the underlying receivables, the GSCFF notes. FCI, the factoring industry association, lists four services a factor provides: protection against bad debts, collection of receivables, financing and receivables ledger administration.
In invoice discounting, the seller retains control of management and must run procedures that meet the finance provider's requirements, according to the GSCFF.
The cross-border legal definition sets a floor. The UNIDROIT Convention on International Factoring (Ottawa, 1988) requires the factor to perform at least two of four functions: finance for the supplier, maintenance of accounts relating to the receivables, collection, and protection against default by debtors.
03 · Who knows
Factoring is usually disclosed to the buyer; invoice discounting can stay confidential
In factoring, the invoice bears a and the buyer is notified of the assignment of the receivables, the GSCFF states. On the due date, the buyer pays the outstanding invoice to the finance provider.
Invoice discounting may be disclosed or undisclosed to the buyer, the undisclosed form being . At maturity, the buyer pays into an account in the seller's name from which only the finance provider may withdraw funds, according to the GSCFF.
The line is not absolute. The GSCFF lists confidential or disclosed as one of four pairs of factoring variations, alongside domestic or international, recourse or non-recourse, and whole turnover or selective.
Figure 2 · Interactive
Where the buyer's payment goes
Tap a product to follow the invoice. The highlighted step is the one that differs.
Source: Global Supply Chain Finance Forum, Standard Definitions, factoring and receivables discounting pages, revised October 31, 2024.
04 · Who carries the credit risk
Recourse terms, not the product label, set who absorbs a buyer default
FCI explains that where credit cover is in place, the factoring is known as ; where it is not, it is . In non-recourse factoring, the finance provider will pay normally 100% of the credit-covered receivables if the buyer defaults, the GSCFF notes.
Invoice discounting can also be , but there are many situations where or limited recourse is maintained, according to the GSCFF. For credit cover on its own, see our guide to trade credit insurance.
05 · How each is priced
Both charge for money in use; factoring adds a fee for the services it runs
Under factoring, the seller receives the invoice value less a fee for offering the service and a charge for the period the money is used, FCI explains. Under invoice discounting, interest and other charges are payable on receipt of the proceeds from the buyer, and any unfinanced part of the invoice is paid to the seller under the , according to the GSCFF.
The calculator below runs the same invoice through both products. Both use the same , rate and days; only the fee differs, because the factor runs the ledger and collects while the discounting seller does that work itself. The fees are illustrative, not market figures. Our guide to how trade finance is priced sets out the wider cost picture.
Figure 3 · Try it
The same invoice, financed two ways
Pick a product, then move the sliders. The fee pays for the services each product includes.
Product
Advance rate
Days until payment
Advance now
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Balance on collection
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Total cost
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Formula: advance equals invoice times advance rate; discount charge equals advance times annual rate times days over 360; fee equals invoice times fee percent; balance equals invoice minus advance minus fee minus discount charge. Choosing a product resets the fee to its illustrative default: 1.50% for factoring, 0.50% for invoice discounting.
Our Research Desk used simple interest on a 360-day year: advance x annual rate x days / 360, plus a fee on the invoice. The rates and fees shown are for illustration and are not Ossiano pricing.
This calculator explains the concept only. Fees, advance rates and rates vary by provider, buyer, sector and the services included.
On the default inputs, a USD 1,000,000 invoice at an 80% advance, 6.50% a year and 60 days carries the same discount charge of $8,666.67 under both products. With the illustrative fees, total cost is $23,666.67, or 2.37% of the invoice, under factoring and $13,666.67, or 1.37%, under invoice discounting. The $10,000 gap is the fee for the ledger and collection services the factor provides. The 360-day basis follows the US money market convention recommended by the Alternative Reference Rates Committee and used in the Federal Reserve's H.15 release.
06 · Market and rules
Factoring has a cross-border rulebook; invoice discounting runs on the contract
World factoring volume reached EUR 4.04 trillion in 2025, according to the FCI Annual Review 2026. FCI's preliminary statistics put 2023 volume at EUR 3,781 billion, up 3.3 percent from EUR 3,659 billion in 2022.
In the UK, invoice finance and asset-based lending providers supply well over GBP 20 billion to client businesses at any one time and around GBP 150 billion of finance a year, UK Finance reports. The combined 2024 turnover of the businesses they support was over GBP 315 billion. These figures cover the UK only and combine both products with asset-based lending; no published source we found splits volumes between factoring and invoice discounting.
Factoring also features in development finance. On December 13, 2016, the EBRD announced a TL 50 million credit line to TAM Faktoring to expand finance for micro, small and medium-sized enterprises in Turkey.
The rules differ in kind. FCI describes its General Rules for International Factoring (GRIF) as the framework for cross-border factoring under its , in a 2022 FCI note. Invoice discounting sits under the Receivables Purchase Agreement between seller and finance provider, as the GSCFF sets out. The UN Convention on the Assignment of Receivables in International Trade (New York, 2001) is not in force, with two parties, Liberia and the United States, according to UNCITRAL.
07 · Ossiano view
The choice turns on control of the customer relationship
OBSERVATION 01
Two service models on one asset
FCI's four factoring services set against the seller-run ledger in invoice discounting let a finance team choose how much of collections it keeps in-house.
OBSERVATION 02
Confidentiality is a recognized option
The GSCFF recognizes undisclosed receivables discounting, with buyer payments into a controlled account in the seller's name. Buyer relationships can stay with the seller.
OBSERVATION 03
A large, established market
UK Finance reports over GBP 315 billion of 2024 turnover at businesses supported by invoice finance and asset-based lending, and FCI reports EUR 4.04 trillion of world factoring in 2025.
Summary
Same invoices, different division of work
Both products sell invoices to a finance provider at a discount. In factoring the provider usually manages the debtor portfolio and collects, and the buyer is notified of the assignment. In invoice discounting the seller keeps sales ledger management, and the financing may be undisclosed to the buyer. Either can be with or without recourse. UK Finance names factoring and invoice discounting as the most widely known types of invoice finance.
Instrument cards: factoring, invoice discounting and trade credit insurance. Every term on this page is defined in the Trade Finance Glossary.
Related guides: receivables finance, trade credit insurance, payables finance, dynamic discounting, how trade finance is priced and working capital and trade finance.
For questions on how these shifts affect existing or planned trade finance exposures, contact the Ossiano Research Desk.
Sources
- FCI, FCI Annual Review 2026, 2026. Supports: world factoring volume of EUR 4.04 trillion in 2025.
- UK Finance, Invoice finance and asset-based lending, undated (figure year 2024). Supports: 2024 turnover of client businesses over GBP 315 billion; factoring and invoice discounting as the most widely known types of invoice finance, with the debtor book as the core asset; well over GBP 20 billion provided at any one time; around GBP 150 billion of finance a year.
- Court of Appeal (Civil Division), England and Wales, Close Invoice Finance Ltd v Watts & Anor [2009] EWCA Civ 1182, September 2, 2009. Supports: Discounting Agreement dated August 23, 2005; Haydon's business (paragraph 4); purchase of receivables at face value and pre-payment of 80 percent of each receivable (paragraph 5).
- FCI, What is factoring?, undated. Supports: the four factor services; non-recourse with credit cover and recourse without it; the service fee and the charge for the period the money is used.
- Global Supply Chain Finance Forum, Factoring, Standard Definitions technique page, October 31, 2024. Supports: factoring definition; provider manages the debtor portfolio and collects; notice of assignment and buyer notification; the four variation pairs; advance of usually around 80%; buyer pays the provider on the due date; 100% payment on credit-covered receivables in non-recourse factoring.
- Global Supply Chain Finance Forum, Receivables Discounting, Standard Definitions technique page, October 31, 2024. Supports: receivables discounting definition and invoice discounting as a synonym; seller keeps ledger and credit control; disclosed or undisclosed; recourse terms; the facility under a Receivables Purchase Agreement; invoicing, funding, collection account and settlement steps.
- UNIDROIT, UNIDROIT Convention on International Factoring (Ottawa, 28 May 1988), May 28, 1988. Supports: a factor performs at least two of four functions, Article 1(2).
- FCI, Contract and rules, the key elements for correct factoring and supply chain finance transactions, August 2, 2022. Supports: GRIF as the framework for cross-border factoring under the two-factor legal framework.
- UNCITRAL, Status: UN Convention on the Assignment of Receivables in International Trade (New York, 2001), undated. Supports: the convention is not in force; parties are Liberia and the United States.
- Alternative Reference Rates Committee, SOFR "In Arrears" Conventions for Syndicated Business Loans, July 22, 2020. Supports: Actual/360 as the standard US money market day count, used in Figure 3.
- Board of Governors of the Federal Reserve System, Selected Interest Rates (Daily), H.15, September 29, 2026. Supports: money market rates annualized on a 360-day year, used in Figure 3.
- European Bank for Reconstruction and Development, EBRD loan to TAM Faktoring boosts finance options for Turkish businesses, December 13, 2016. Supports: TL 50 million credit line to TAM Faktoring for MSME finance in Turkey.
- FCI, FCI 2023 preliminary world factoring statistics, April 22, 2024. Supports: world factoring volume of EUR 3,781 billion in 2023, up 3.3 percent from EUR 3,659 billion in 2022.
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