Invoice factoring vs invoice discounting in South Africa

Invoice factoring and invoice discounting work the same way at heart: a lender gives you cash against a confirmed invoice, and is repaid when your customer pays. They differ in one important way: who chases your customer for payment. That difference shapes everything else.

The core trade-off

Factoring: the lender takes over collection. Your customer pays the factor directly, and the factor handles chasing, reconciliation and overdue accounts.

Discounting (or selective invoice finance): you keep the customer relationship and the collection. The lender fronts you cash against a specific invoice, or against your whole debtors book, and you repay it when the customer pays you.

Why this matters in practice

Factoring usually costs more, because the fee pays for the factor to run your collections as well as for the money. Your customer also knows you are using a factor, since the invoice carries the factor’s payment details. If you want to stay the only face of your business, that visibility can be a problem.

Discounting is usually cheaper, because you keep doing the collection work yourself. Your customer never deals with the lender: they pay you, and you settle with the lender. Lenders tend to reserve it for businesses whose own credit control is already in good shape.

Where to find each

• On Frank’s panel, Geddes Capital offers invoice factoring against your debtors book, on its own or alongside its other facilities.
• Outside the panel, banks and specialist factoring houses offer both, usually to larger, established debtor books.

When factoring is the right call

• The hours spent chasing debtors cost you more than the difference in fees.
• Your customers are corporates who already deal with factored invoices and don’t mind who collects.
• You have a large, spread-out debtors book, which factors like because the risk is spread.
• You want to hand credit control over entirely as the business grows.

When discounting is the right call

• You have a few high-value B2B customers and the relationship matters.
• You want to choose which invoices to finance (selective invoice finance).
• Your collection process already works; there is no need to pay someone else to run it.
• You want to be able to unwind the facility cleanly.

A rule of thumb

With a handful of large customers whose relationship you want to keep, ask for selective discounting first. When the debtors book is large and chasing it eats your time, factoring’s higher cost can pay for itself.

Work out your fit.

Give Frank one set of answers, about a minute, and it shows whether invoice finance fits your business and which lenders on the panel offer it: See your funding options.