Invoice Discounting Explained
Get Paid Now Instead of Waiting 90 Days
Invoice discounting is a form of short-term borrowing where a lender advances you up to 90% of your unpaid invoice value β today β in exchange for a fee. You get cash now; the lender collects from your client later. For freelancers with long payment terms and clients who pay slowly, it can be a lifeline. But the costs add up fast.
π Invoice discounting in plain English
You invoice a client for Β£10,000 with Net 60 payment terms. Instead of waiting 2 months, you sell that invoice to a lender for Β£9,200 (92%). You get Β£9,200 today. The lender chases your client for Β£10,000. They keep the Β£800 difference as their fee. Your client may or may not know this is happening (confidential vs disclosed discounting).
How invoice discounting works β step by step
You issue an invoice
Normal invoice to your client with 30/60/90-day payment terms. The invoice must be for work already completed.
You submit it to the lender
Upload the invoice to a discounting platform (Tide, MarketFinance, Bibby Financial Services, etc.).
Advance paid within 24β48 hours
The lender advances 70β90% of the invoice value into your bank account, usually within 1β2 business days.
Client pays (to you or the lender)
In confidential discounting, your client pays your bank account as normal and you forward it to the lender. In disclosed discounting, the lender's name is on the invoice.
You receive the remainder minus fees
Once the client pays in full, the lender sends you the remaining 10β30% minus their fee (typically 1β5% of invoice value).
Invoice discounting vs invoice factoring
These terms are often confused. Here's the key difference:
| Feature | Invoice Discounting | Invoice Factoring |
|---|---|---|
| Client knows about it? | β Usually confidential | β Yes (disclosed) |
| Who chases client? | You | The factoring company |
| Credit control | You keep control | Outsourced to lender |
| Client relationship | Preserved | Can feel unprofessional |
| Typical advance | 85β90% | 70β85% |
| Fee | 0.5β2% of invoice | 2β5% of invoice |
| Best for | Established businesses | Small businesses, startups |
What does invoice discounting actually cost?
Costs vary by provider and risk, but expect:
Is invoice discounting right for you?
β Good fit if...
- β’ You invoice large companies with Net 60β90 payment terms
- β’ You have a one-time cash flow gap (new hire, big expense)
- β’ Your profit margin is high enough to absorb 2β5% fee
- β’ You invoice at least Β£50K/year (minimum fees otherwise hurt)
- β’ Your clients are creditworthy (reduces lender's risk = lower fees)
β Not a good fit if...
- β’ You're a freelancer with invoices under Β£5,000
- β’ Minimum monthly fees would eat your profit
- β’ Your clients pay late AND are small companies (high risk = high fees)
- β’ You can solve the cash flow problem by getting clients to pay faster
- β’ You're early stage with few clients (concentration risk)
The better alternative: make clients pay faster
Before paying a 3β5% fee to get your money early, try the simpler approach: send professional reminders that actually work.
Studies show that clients who receive a polite reminder within 3 days of the due date pay 67% faster than those who don't get a reminder. The problem is that most freelancers send one reminder then give up (too awkward) or forget entirely.
Chaser sends a 4-stage escalation automatically:
Each email includes an iDEAL/card 'Pay now' button β one click and it's done. Zero fee. Zero awkward conversations. β¬20/month vs 3β5% per invoice.
UK invoice discounting providers (2026)
Before paying 3% fees β try automatic reminders first π
Chaser's 4-stage escalation gets 67% of late invoices paid without you spending a penny on discounting fees. First 5 invoices are free.
Try Chaser free β