Invoice Discounting is where finance is provided to a company backed by the security of accounts receivable. This is therefore similar to Invoice Factoring, though in the case of Invoice Discounting, the customer is not made aware of the transactions against the payments. The service is provided only where the good or services are supplied on credit terms business to business.

It is harder to obtain an invoice discounting facility than with Invoice Factoring and the provider of the Invoice Discounting Service will need to be aware of the quality of the customers and the relative spread of money owed. Usually it is considered unwise to have any one customer with over 20% of the debts. Also the supplier of the services or products will need to be able to show that there are good credit control facilities in place with debts being collected in an efficient and timely manner.  In addition, the supplier should have a good system for its sales ledger.

The process works by the provider of the Invoice Discounting Service opening a trust account at a nominated bank and all monies paid to the supplier will be paid into this account. The supplier will send the service provider regular notification of invoices and credit notes together will supporting documentation specified. Then the service provider will advance to the supplier up to 85% of the invoice total with Vat included. The final payment is made when the customer settles the account.