Factoring and discounting are the two options available for invoice finance. In both cases, a third party will act as an invoice financier, providing you with funds upfront. You will forgo some fraction of the money owed to you by your commercial customers, in exchange for getting the remainder of the balance immediately rather than having to wait for the invoice to become due.
The key point with invoice factoring is that the invoice financier will take responsibility for collecting money from your commercial clients. The advantage of this is that you will not have to chase the debts yourself. The money you receive upfront from the financier will be a percentage of the value of the debt. This can vary, but 85% would be a typical rate. The financier will then take charge of recovering the full amount of debt directly from your customers. When the money has been paid, you will receive the remainder of the balance, less applicable interest and fees.
In the case of discounting, the invoice financier will agree to lend you money based on the value of your outstanding invoices. Again, this will be a percentage of their value and will be subject to interest and fees. However, the key difference is that you will retain the responsibility for collecting the debts yourself. As you receive money from your customers, this will be passed directly to the financier to repay your debt. The financier may also agree to continue providing additional finance based on the value of new invoices as they are raised.