Invoice Discounting vs Factoring
Both unlock cash tied up in unpaid invoices, but one keeps collections in your hands while the other hands them to a financier. Here's how to choose.
Quick verdict
Choose invoice discounting to raise cash against receivables while you stay in control of your own collections, confidentially.
Choose factoring when you want the financier to take over collections and, in non-recourse deals, the credit risk too.
Both cost roughly 0.8% to 1.5% per month in India; discounting is cheaper, factoring bundles in collections support.
The basics
Invoice Discounting
A facility where you borrow up to 80% to 90% of an unpaid invoice's value and repay once your customer pays you. It is usually confidential, so your customer never knows, and you keep control of collections and your ledger.
Factoring
The sale of your receivables to a factor who advances 70% to 90% upfront, then collects directly from your customers. It is typically disclosed, and non-recourse factoring also transfers the risk of customer default to the factor.
Invoice discounting vs factoring at a glance
| Factor | Invoice Discounting | Factoring |
|---|---|---|
| Who collects payment | You retain collections | Factor collects from customers |
| Confidentiality | Usually confidential | Usually disclosed to customers |
| Advance rate | 80% to 90% of invoice | 70% to 90% of invoice |
| Typical cost | 0.8% to 1.5% per month | 1% to 2% per month plus service fee |
| Credit risk | Stays with you (recourse) | Can shift to factor (non-recourse) |
| Ledger management | You manage your own ledger | Factor manages sales ledger |
| Best for | Established firms with own collections | SMEs wanting collections outsourced |
| Customer relationship | Undisturbed | Factor interacts with your customers |
| Speed | Term sheet in 48 hours | Slightly slower due to ledger setup |
What an invoice discounting term sheet looks like
An anonymised sample facility for a B2B manufacturing SME, with each term explained in plain English.
| Term | Sample value | What it means in plain English |
|---|---|---|
| Facility limit | ₹2 Cr | The maximum outstanding you can draw against eligible invoices at any time. |
| Instrument | Invoice discounting (recourse) | Cash advanced against invoices; you repay when your customer pays, and stay liable if they don't. |
| Advance rate | 85% of invoice value | You receive 85% upfront and the balance, less charges, on collection. |
| Discount charge | 1.2% per month | The financing cost, charged only for the days each invoice stays funded. |
| Tenure per invoice | Up to 90 days | Each drawdown must be repaid within the customer's credit period. |
| Processing fee | 0.75% one-time | A one-time setup fee on the sanctioned limit. |
| Security | Charge on receivables | The invoices themselves secure the facility; no equity or fixed assets pledged. |
| Eligible customers | Rated corporates and PSUs | Invoices to creditworthy buyers qualify for the best advance rates. |
Anonymised, indicative sample. Actual terms depend on your revenue, margins, and lender.
When to choose each
Choose invoice discounting when
- You have a capable in-house collections team and want to keep control.
- You value confidentiality and don't want customers to know you're financing.
- Your buyers are large, creditworthy corporates or PSUs.
- You want the lowest-cost way to unlock working capital from receivables.
Choose factoring when
- You'd rather outsource collections and sales-ledger management.
- You want non-recourse cover so the factor absorbs customer default risk.
- You're a growing SME without a dedicated credit-control function.
- You're comfortable with the factor contacting your customers directly.
How Recur Club helps you finance receivables the right way
Whether discounting or factoring fits depends on your customers, your collections capability, and how much confidentiality matters. Recur Club brings 125+ lenders onto one AI-native platform so you compare real receivables offers side by side.
Connect your invoicing and bank data once, and you receive an indicative term sheet within 48 hours, with advance rates and charges matched to the quality of your buyers.
With ₹3,000 Cr+ deployed across 2,000+ companies, our team helps you structure a facility that turns unpaid invoices into working capital without diluting a single share.
Frequently Asked Questions
Turn unpaid invoices into working capital
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