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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Invoice discounting

What is invoice discounting, and how is it different from factoring?

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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Invoice discounting is receivables finance in which a business borrows against its unpaid invoices but keeps collecting its own sales ledger, so its customers never know the invoices are financed. The confidentiality is both its appeal and its risk: the financier is trusting the client's own collection conduct and bookkeeping, so it offers discounting to businesses whose ledger and controls deserve that trust, and checks them through regular audits of the ledger.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

Invoice discounting is not factoring: under factoring the financier takes over the sales ledger, the debtors are told and pay the financier directly, and collection becomes the financier's job.

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RECEIVABLES AND TRADE

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