Invoice factoring and invoice discounting both give you cash against invoices your customers have not paid yet. The difference is who collects the payment and whether your customers know. That shapes the cost, the eligibility and how the arrangement feels in day-to-day business.
loan-o is a Brisbane finance broker based in Milton. We compare invoice finance across a panel of 50+ bank and non-bank lenders. This guide is general information, so check the details of any offer and the tax side with your accountant.
Quick answer
- Factoring: the lender typically manages collections, and your customers are usually told to pay the lender. It tends to suit businesses that want to outsource collections.
- Discounting: you keep collecting from your customers and the arrangement is usually confidential. It tends to suit established businesses with strong credit control.
- Selective (spot) finance: you fund individual invoices with no ongoing commitment.
How invoice factoring works
You raise an invoice, and the lender advances a percentage of its value soon after. The lender then chases the customer, who is typically directed to pay the lender. When the customer pays, the lender releases the balance, less its charges. Because the lender is doing the collection, you save the time but your customers see the lender in the relationship.
How invoice discounting works
The advance works the same way, but you stay in charge of collections. Your customers keep paying you as normal, and you pass the funds on to the lender under the facility. This is usually confidential, so customers are not told. Lenders tend to ask more of the business for this, since they rely on your credit control rather than doing it themselves.
Factoring vs discounting: side by side
| Factoring | Discounting | |
|---|---|---|
| Who collects payment | Usually the lender | You |
| Do customers know? | Usually yes | Usually no |
| Eligibility | Generally less strict than discounting | Generally stricter |
| Credit control | Outsourced | Stays with you |
| Best suited to | Businesses that want predictable cash and to outsource collections | Established businesses with strong internal credit management |
Which one fits your situation?
- You are small, growing, or short on admin time. Factoring can take collections off your plate.
- You value customer relationships and have solid credit control. Discounting keeps the arrangement in the background.
- You need cash only now and then. Selective (spot) finance lets you fund a single invoice without committing your whole ledger.
- Your gap is broader than late invoices. Compare invoice finance, a line of credit and an overdraft.
What to check before you sign
- Whether the facility is with or without recourse, and what is excluded
- Every fee and how it is calculated, plus minimums and lock-in periods
- Who contacts your customers, and how that affects the relationship
- What happens if a customer pays late or disputes an invoice
Our guide to comparing the total cost of business finance shows how to put offers side by side, and invoice finance fees explained breaks down the charges. See our invoice finance page for how loan-o matches businesses to lenders.
The takeaway
Factoring hands collections to the lender and is usually visible to your customers. Discounting keeps collections with you and is usually confidential, but asks more of your business. The right one depends on your processes, your customers and how much you value control. loan-o can review your situation for free; start a free finance check with no credit check to enquire.
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Finance is subject to lender approval, lending criteria, terms, conditions, fees and charges. The information in this article is general and does not take into account your personal or business needs. It should not be treated as personal financial, tax, legal or credit advice.
Last reviewed: 22 October 2026. This content provides general information only. It should not be treated as personal financial, tax, legal or credit advice.
Frequently asked questions.
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With factoring, the lender usually manages collections and your customers are typically told to pay the lender. With discounting, you keep control of collections and the arrangement is usually confidential. Both advance cash against unpaid invoices.
With factoring, usually yes, because they are typically asked to pay the lender directly. With discounting, usually no, because they continue to pay you as normal. The exact arrangement depends on the lender and the facility, so confirm it before you sign.
Discounting generally has more stringent eligibility requirements, because you keep collecting and the lender relies on your credit control. It tends to suit more established businesses with strong internal processes. Requirements vary by lender.
It depends on the lender, your volumes and your customers, so there is no fixed answer. Factoring can include a charge for the collection service, while discounting leaves that work with you. Ask each lender for every fee in writing and compare the total for the same set of invoices.
Yes, with selective invoice finance, also called spot factoring, you fund individual invoices without committing your whole ledger. It is usually more expensive per invoice than a full facility but offers the most flexibility.
Yes. loan-o is a broker, not a lender, and compares options across a panel of 50+ bank and non-bank lenders. Starting a conversation is an enquiry and does not involve a credit check.
Factoring or discounting? Ask a loan-o specialist first.
No obligation, no jargon - just a straight answer about which structure fits how your business actually works.
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