Invoice factoring vs. invoice discounting.

Learn the differences between invoice factoring and invoice discounting to boost cash flow for outstanding invoices.

Outstanding invoices can really hurt your cash flow. Invoice factoring and invoice discounting are two ways to finance overdue receivables to keep money flowing.

What is invoice factoring?

Invoice factoring is essentially selling your outstanding invoices for one lump sum. A factoring company will buy your overdue invoices for around 80 to 90 percent of what they’re worth and take over all collection efforts.

Because the factoring company deals directly with your customers to receive payment, you can continue doing business as usual.

What is invoice discounting?

Invoice discounting is like taking out a loan against your outstanding invoices. A discounting company will loan you the full amount of your outstanding invoices, and you pay them back as you receive payment.

While you do receive the full value of your overdue invoices (unlike invoice factoring), you will have to pay interest on the loan. You’ll also still have to manage collections efforts so that you can repay the discounting company.

Which is best: Invoice factoring vs. invoice discounting?

In general, invoice factoring is less risky than invoice discounting — but with factoring you’ll get less money for outstanding invoices.

Many small businesses prefer invoice factoring simply because it’s less work. You don’t have to worry about collections and still get most of the value of your overdue invoices.

Large companies with consistent customer bases and dedicated collections departments typically use invoice discounting. They’re set up to handle collection efforts and have other sources of revenue to pay back the loan if they can’t collect from the customer.

Simplify invoice financing.

No matter which invoice financing option you choose, both require signatures to take possession of outstanding invoices. With one click, you can legally transfer your overdue invoices by using a versatile e-signature software like Adobe Sign.

Explore what more you can do with Adobe Sign to make business invoicing hassle-free.