Invoice discounting is a confidential finance facility that lets UK businesses release cash against their unpaid invoice book – typically 80–90% of outstanding invoice value – while retaining full control of credit management and customer relationships. Unlike invoice factoring, your customers are unaware of the finance arrangement: they continue to pay into a collection account in your business name. In 2026, invoice discounting is available to businesses with £500,000+ annual turnover from providers including Novuna, Bibby Financial Services, and Close Brothers.
- Release 80-90% of invoice value - Higher advance rates than traditional overdrafts, providing substantial immediate working capital
- Costs typically run 1-3% of turnover a year - Total fees include service charges and interest, varying significantly between providers
- Minimum £250K annual turnover - Most providers require established trading history and consistent B2B invoice volumes
- Confidential facility maintains client control - Customers pay you directly unlike factoring where provider collects payments
- Setup takes 2-4 weeks typically - Faster than traditional bank loans but requires detailed due diligence process
What Is Invoice Discounting?
Invoice discounting is a form of receivables finance where a lender advances 80–90% of your outstanding invoice book value, secured against the debts owed to you. You retain responsibility for chasing customers for payment (credit control). When customers pay, their payment goes into a trust account in your business name – the lender then takes its advance plus fees, and remits the remainder. The key feature is confidentiality: your customers have no reason to know you have a finance facility against their debts.
Invoice discounting works as a revolving credit facility rather than a fixed loan. As you raise new invoices and submit them to your lender, the available facility grows. As customers pay and funds are released, the facility reduces. This creates a permanent working capital facility that scales automatically with your sales – unlike a fixed-term loan that runs out regardless of business growth. For alternatives, see our Kriya Finance Review.
Invoice Discounting vs Invoice Factoring
Invoice discounting and factoring both release cash from unpaid invoices, but with different responsibilities and disclosure levels. With discounting: confidential (customers unaware), you manage credit control, typically requires £500K+ turnover, lower service charge. With factoring: disclosed (customers redirected to factor’s account), factor manages credit control, accessible from £50K–£100K turnover, higher service charge (covers the collections service). Discounting is preferred by established businesses with strong credit management; factoring by smaller businesses that benefit from outsourced collections.
Invoice Discounting Costs
Invoice discounting costs have two components. The finance charge is daily interest on the advanced balance, typically base rate plus 1.5–3% p.a. With the base rate at 3.75% in September 2026, that is roughly 5.25–6.75% per annum. The service charge is an administrative fee based on annual turnover, typically 0.2–0.5% of turnover. That is lower than factoring because you handle credit control yourself. Total annual cost for a typical discounting facility is 1–3% of annual turnover, depending on facility utilisation and payment speed.
| Fee Type | Typical Range | Why Lower Than Factoring |
|---|---|---|
| Finance charge | Base rate + 1.5–3% p.a. | Similar to factoring – cost of money advanced |
| Service charge | 0.2–0.5% of annual turnover | You do credit control, so lower admin cost |
| Total annual cost | 1–3% of turnover (typical) | Factoring = 1.5–5%; discounting = cheaper |
Invoice Discounting Eligibility
Invoice discounting has five typical requirements. You need a minimum annual turnover of £500,000, though some providers accept £250,000 if you outsource credit control. You need a B2B business model, invoicing other businesses on credit terms. You need an established credit control function, because you must be capable of managing your own collections. Lenders also want at least 1–2 years of trading history. Finally they look at your spread of debtors: concentration risk, where one customer represents 50%+ of your ledger, may reduce the facility available. Businesses with fewer than 10 active debtors may find factoring more accessible than discounting.
Types of Invoice Discounting
Invoice discounting comes in four main variants. Whole-turnover discounting submits all invoices automatically, and is the most common type. Selective or spot discounting funds individual invoices on demand with no minimum commitment, and is Kriya’s core product. Confidential invoice discounting is standard whole-turnover cover with full confidentiality. Recourse and non-recourse discounting differ on who carries the risk: with recourse you bear the credit risk if the customer doesn’t pay, while non-recourse moves that risk to the lender for an additional premium. Most UK discounting facilities are recourse by default; non-recourse costs approximately 0.5–1% more per year.
Pros and Cons
