Factoring vs invoice discounting: which suits your company?

The basic mechanics are the same across all types. You raise an invoice to a business customer for goods delivered or work completed. You submit that invoice to the funder, which advances an agreed percentage, often within a day or two once the facility is set up. When the customer pays, the funder deducts its charges and passes the remainder to you.

Figures from Banking and Payments Federation Ireland (BPFI) for the first quarter of 2026, published on 14 August 2026, show that more than €1.3 billion was advanced by participating lenders to client businesses at the end of Q1 2026, down 1.4% year on year. Total funds available rose 1.9% to over €3 billion, and average debtor days fell from 45 to 43. Reporting those figures, the Irish Times noted that invoice financeAn umbrella term for funding secured on a company's unpaid invoices, so cash comes in before customers pay. typically releases 85% to 95% of the cash tied up in unpaid invoices. BPFIThe representative body for banking and payments in Ireland, with over 125 domestic and international member institutions. says it supports businesses across manufacturing, agriculture, transport and logistics, services and recruitment.

Because the facility is linked to your sales ledger, the amount you can draw usually grows as your invoicing grows. That makes invoice finance a working capitalThe money a business has available to fund day-to-day operations, calculated as current assets, such as cash, stock and debtors, minus current liabilities, such as suppliers and short-term debt. tool rather than a one-off loan. It suits companies with creditworthy business customers. It does not work for sales to consumers or for cash sales.

The short answer on invoice factoringA form of invoice finance where a company sells its unpaid invoices to a finance provider in exchange for an upfront advance. vs discounting: factoring adds a collections service and is visible to customers; discounting leaves collections with you and is usually confidential, but funders expect stronger systems and a longer track record.

Invoice factoring

With factoring, the funder takes over the management of your sales ledger and collects payment from your customers. Your customers are told to pay the funder directly, so the arrangement is disclosed. Factoring can suit smaller or younger companies that do not have a dedicated credit control team, because the funder chases payments for you. Our invoice factoring page covers the product in more detail.

The trade-off is control. Someone else is speaking to your customers about money, so it is worth asking how the funder handles collections and whether its approach fits your customer relationships.

Invoice discounting

With invoice discounting, your company keeps control of its sales ledger and continues to collect payments itself. In many cases the arrangement is confidential, so customers do not know a funder is involved. Funders usually expect established companies with reliable bookkeeping, proven credit control and a meaningful level of turnover before offering confidential discounting.

You will normally report your sales ledger to the funder regularly, and the funder may audit your records. Poor reporting can lead to reduced funding or the facility being withdrawn, so good systems matter. See our invoice discounting page for typical requirements.

Selective invoice finance

Selective invoice finance, sometimes called spot factoring, lets you fund individual invoices or specific customers rather than your whole sales ledger. You choose when to use it. It can suit companies with occasional cash flow gaps, a single large contract, or seasonal peaks. The cost per invoice is usually higher than a whole-ledger facility, but you avoid ongoing minimum fees.

Recourse and non-recourse describe who carries the risk if a customer does not pay.

• Recourse: if your customer fails to pay within an agreed period, your company must repay the advance or replace the invoice. Most facilities work this way and they are usually cheaper.
• Non-recourse: the funder carries the risk of a customer becoming insolvent, within agreed limits. It costs more and usually applies only to insolvency, not to disputes over the quality of your work or goods.
• Partial cover: some facilities cover selected customers only, or a percentage of each debt.

Read the definitions of bad debt and disputed debt carefully. Non-recourse rarely means that every unpaid invoice becomes the funder's problem.

Pricing varies by funder, sector, customer quality and facility size, so there is no standard rate. Most facilities combine some of the following charges:

• Discount or interest charge: calculated on the money you have drawn, for as long as it is outstanding.
• Service or administration fee: often a percentage of the invoices you submit, or a fixed monthly fee.
• Set-up, audit or valuation fees: charged at the start and sometimes annually.
• Minimum fees and notice periods: whole-ledger facilities may have a minimum term and charges for leaving early.
• Per-invoice fees: common on selective invoice finance.

Ask every funder for an illustration of the total cost based on your real invoice volumes and customer payment times. Our invoice finance calculator gives a rough starting estimate. A low headline rate can be offset by higher fees or a long minimum term. Funders usually take security over the invoices themselves and often ask directors for a personal guarantee or an indemnity covering warranties about the invoices. If those warranties are breached, for example if an invoice turns out to be disputed, the director could become personally liable, so make sure you understand what you are signing and take independent legal advice.

Construction businesses can use invoice finance, but funders look closely at how construction contracts work. Several features make construction invoices harder to fund than, for example, a recruitment agency's weekly invoices.

• Applications for payment and valuations: amounts claimed are often certified later and can be reduced, so funders may only advance against certified sums.
• RetentionsA percentage of each payment held back by the client or main contractor until a project is complete or defects have been put right.: money held back until completion or the end of a defects period is usually not funded, or only at a low rate.
• Set-off and counterclaims: a main contractor may deduct costs it says it is owed, which makes the true value of an invoice uncertain.
• Relevant Contracts Tax (RCT): where a principal contractor deducts RCTA withholding tax that applies when a principal contractor pays a subcontractor for work in construction, forestry or meat processing. at 20% or 35%, the cash you receive is lower than the gross invoice. Revenue applies 0% only where tax compliance is fully up to date.
• Contract terms: funders will want to see the contract and check for clauses that restrict assigning payment rights.

The Construction Contracts Act 2013An Irish law, in force for contracts entered into after 25 July 2016, that sets payment rules for construction contracts and gives a right to statutory adjudication of payment disputes. helps by banning pay-when-paid clauses (except where a third party is insolvent), setting payment claim procedures and giving access to statutory adjudication for payment disputes. It applies to most construction contracts worth more than €10,000, with some exclusions such as small dwellings for owner-occupiers. Even so, some funders specialise in construction while others avoid it, so the choice of funder matters. A solicitor can advise on your contract terms.

Invoice finance tends to work well for limited companies that:

• Sell to other businesses or public bodies on credit terms.
• Have a spread of creditworthy customers rather than relying on one.
• Are growing and need working capital that grows with sales.
• Have fewer fixed assets to offer as security for a traditional loan.
• Face long payment terms set by larger customers.

It is usually less suitable where invoices are frequently disputed, where most sales are to consumers, or where the business is paid in advance or in stages that do not produce clear invoices. Funders also assess the financial position of your company and its directors, so approval is always subject to status and the lender's own criteria.

If the cash gap comes before you can invoice, for example when you must pay suppliers to fulfil a large confirmed order, purchase order finance is a specialist alternative, and recruitment companies funding weekly wages sometimes look at payroll finance, another specialist product. For ways to smooth everyday cash flow without a whole-ledger facility, see our guide to overdraft alternatives for Irish companies.

1. Work out your need: an ongoing funding gap points to a whole-ledger facility; occasional gaps point to selective invoice finance.
2. Assess your credit control: if you have strong in-house collections, invoice discountingA confidential form of invoice finance where a company borrows against its unpaid invoices but keeps control of its own credit control and collections. may suit; if not, factoring adds that service.
3. Decide on confidentiality: if customer perception is important, ask whether confidential discounting is realistic for your size and track record.
4. Consider bad debt risk: if a single customer failure would hurt badly, compare the cost of a non-recourse facility.
5. Compare total costs, not headline rates: include fees, minimum terms and exit charges.
6. Check security and guarantees: understand any debenture, personal guaranteeA legally binding promise by a director or other individual to repay a company's debt if the company cannot. or indemnity before you sign.

Late payment is not something you simply have to accept. Under Irish late payment rules, you may be entitled to claim statutory interest on overdue commercial invoices. Invoice finance works alongside good credit control rather than replacing it.

If your company's cash flow gap could be met another way, for example with a working capital loan, stock finance or trade finance, tell us what your company needs and we'll tell you honestly whether our panel can help, or where to apply instead. We are paid commission by lenders. We do not charge your company a fee and never ask for payment upfront. Welcome Finance is a commercial finance broker, not a lender, is not regulated by the Central Bank of IrelandIreland's financial regulator and part of the Eurosystem., and arranges business-purpose finance only for companies registered in Ireland (LTD, DAC, PLC, ULC).