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How does confidential invoice discounting work?

Besides traditional, widely used invoice financing options such as invoice discounting and factoring, lesser-known variants exist. Offered by a few providers, to selected clients, confidential invoice discounting, which never reveals to the end-client that a third party is in fact taking care of such important business processes as credit control and debt collection, provide immediate access to cash even when invoices go (temporarily) unpaid. So why as many as 70,000 UK businesses are believed to be using confidential invoice discounting? What about confidential factoring?

Confidential invoice discounting

What is confidential invoice discounting

Contrary to “traditional” invoice discounting, confidential invoice discounting allows you to never reveal to the client that an invoice finance provider is taking action.

How it works

The fact that an invoice finance provider, or “discounter”, is managing several operations in the business relationship is never revealed to the client.

- Client contacts the financial services provider, which immediately gives him up to 80 or 90%, depending on firms, of the invoice value;

- Client keeps control on sales ledger, credit control and debt collection;

- End-customer never learns about the discounter getting involved;

- Discounters charge a monthly fee plus interests on amounts lent to the business.

Benefits and limitations

Although confidential invoice discounting provides immediate cash and lets the business control the relationship with the end-client, without “shaming” this business as the traditional alternative sometimes does, it still suffers from a few limitations:

- The cost is generally high, at least higher than overdraft finance;

- Eligibility is restricted to organisations with over £250,000 or £300,000 in annual sales;

- Credit is usually limited to a 90 or 120-day period,

- Businesses drawing most of their invoices from a small number of big clients will be subjected to concentration restrictions.


Confidential invoice discounting VS confidential factoring

Confidential factoring is yet another, even more restricted alternative that few businesses in the UK have even heard about.

How it works

Similarly to factoring, confidential factoring is about selling out your invoices to a factor. The factor takes control on the sales ledger, credit control and debt collection for the client company. But in the case of confidential factoring, the end-client never knows it. The factor sends letterheads with the company logo, uses the company number, its employees introduces itself as members of the client company.

Benefits and limitations

The obvious benefit is that the client company no longer needs to worry about anything at all as far as factored invoices are concerned: these invoices are actually outside their business.

But limitations are serious:

- Confidential factoring is even more expensive and more selective than confidential invoice factoring;

- While the client business relinquishes a series of invoices, they still keep their customers. If the factor makes this relationship with the customer turn sour, especially by using aggressive debt collection methods, the client business may simply lose the business relationship completely. And they will not be able to blame it on the factor, since the client does not even know a factor is in the game at all.

This method therefore requires absolute trust in the factor.


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