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Invoice discounting
Also called confidential invoice discounting, receivables discounting, non-notification factoring.
Borrowing against the receivables ledger while continuing to invoice and collect in your own name, so customers never learn the facility exists.
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What it means
Mechanically close to factoring, structurally different in two ways: the business keeps the collection relationship, and the arrangement is typically a loan secured by receivables rather than a purchase of them.
How it runs
The business submits a ledger or borrowing base certificate periodically. Availability is calculated on eligible receivables at an advance rate. The business draws against it, invoices customers as normal, collects as normal — usually into a bank account the lender controls or can sweep — and the lender reconciles.
Customers see nothing. No notice of assignment goes out, no third party calls to verify, and the invoice carries the business's own remittance details.
What the confidentiality costs
The lender has given up its most direct protection, so it compensates elsewhere:
- Tighter eligibility criteria and higher standards on the ledger
- Regular audits and field examinations of the sales ledger and collections
- Full recourse; the credit risk on the customer stays with the business
- A requirement for competent internal credit control, which is why discounting suits established businesses and factoring suits younger ones
- Frequently a controlled or blocked account, so cash is visible even though the customer is not told why
Terminology drift
In the US market "non-notification factoring" is often used for the same arrangement, and some providers offer notification factoring under a discounting label. Read the agreement for two things: is it a sale or a loan, and does a notice of assignment go out.
Where this one catches people
Confidentiality is a facility feature, not a right. Every discounting agreement reserves the lender's ability to notify account debtors and take over collections on default — and default includes covenant breaches, not just missed payments. The moment it happens, every customer learns simultaneously, in the least favourable circumstances, that their supplier is in trouble. Businesses choose discounting specifically to avoid that conversation and then have it anyway, at the worst possible time.
Where you will meet this term
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Invoice discounting — common questions
What does invoice discounting mean?
Borrowing against the receivables ledger while continuing to invoice and collect in your own name, so customers never learn the facility exists.
Where does invoice discounting catch people out?
Confidentiality is a facility feature, not a right. Every discounting agreement reserves the lender's ability to notify account debtors and take over collections on default — and default includes covenant breaches, not just missed payments. The moment it happens, every customer learns simultaneously, in the least favourable circumstances, that their supplier is in trouble. Businesses choose discounting specifically to avoid that conversation and then have it anyway, at the worst possible time.
Is invoice discounting the same as an interest rate?
Invoice discounting is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does invoice discounting apply to?
Business Line of Credit, Invoice Financing, Asset-Based Lending.
Is there a worked example of invoice discounting?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside invoice discounting?
Advance rate, Borrowing base, Invoice factoring, Lockbox, Notice of assignment.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.