For many businesses, waiting on customers to pay can tie up cash you need for day-to-day operations. That’s where funding options like invoice finance and invoice factoring come in. Both give you access to money that’s owed to you, but they work in slightly different ways.

If you’ve ever wondered about the difference between invoice financing vs factoring, you’re not alone. The two are closely related, and the terms are often used interchangeably. 

In this guide, we’ll break down how each one works, the key differences, and how to choose the right fit for your business.

What Is Invoice Finance?

Invoice finance helps businesses unlock the cash tied up in unpaid invoices. Instead of waiting 30, 60 or even 90 days for clients to pay, a finance provider advances most of the invoice value upfront, usually around 80 to 90 percent.

You stay in control of your sales ledger and customer payments, so clients won’t know you’re using finance. When your customer pays their invoice, you receive the remaining balance, minus a small service fee.

It’s a simple way to keep cash flow steady without taking on extra debt. Invoice finance can be a great fit for growing businesses, service providers, and anyone who invoices other companies on credit terms.

Read next: What Is Invoice Financing and How Does It Work?

What Is Invoice Factoring?

Invoice factoring works a little differently. Instead of waiting for customers to pay, you sell your invoices to a finance provider who collects the payments on your behalf. In return, you receive most of the invoice value upfront, usually around 80 to 90 percent.

In simple terms, factoring means the finance company manages your customer payments while you get quick access to most of the money owed.

Because the provider handles credit control and payment chasing, your customers will know they’re dealing with a third party. For many businesses, that trade-off is worth it. It takes the pressure off your team and keeps cash coming in steadily, even when payments are delayed.

Factoring is often used by companies that issue a high volume of invoices or work with larger clients on longer payment terms, such as wholesalers, manufacturers or logistics firms.

Comparing Invoice Finance vs Factoring

Invoice finance and factoring both help you bridge the gap between raising an invoice and getting paid. The difference lies in who manages the payments and how visible that is to your customers.

With invoice finance, you stay in control. You manage your own sales ledger, keep in touch with clients, and handle collections as usual. It’s often a confidential arrangement, so your customers won’t know a finance provider is involved.

With invoice factoring, the provider steps in to manage credit control and collect payments directly from your customers. This means clients will know a third party is handling the process, which can take pressure off your team and free up time for day-to-day operations.

In short: Invoice finance keeps things in-house, while factoring gives you external support. Both improve cash flow and help you get paid sooner. It’s just a question of how much control you want to keep over customer relationships.

Deciding What’s Right for Your Business

Both invoice finance and factoring can make a real difference to your cash flow. The best choice depends on how your business runs and how much control you want to keep over customer payments.

If you prefer to manage credit control yourself and keep things confidential, invoice finance will likely suit you better. It gives you flexibility without changing how your customers interact with your business.

If you’d rather save time chasing payments or free up internal resources, factoring can be a smart move. You’ll still get most of the invoice value upfront, but the provider takes care of collections.

Whichever route you choose, both are designed to take the pressure off cash flow and give you faster access to the money your business has already earned.