The popularity of financing business through invoice discounting and factoring of receivables has grown significantly in the UK over the last 25 years.

Invoice discounting and factoring are types of receivables financing whereby a company, sole trader or partnership, known as the client, sells (ie assigns) its book debts (or receivables) together with all related rights, to an invoice discounter or factor (each a receivables purchaser) at a discounted rate. The advantage to the client is that it enjoys a more predictable and liquid cash-flow cycle.

This Practice Note:

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explains the basic difference between invoice discounting and factoring
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illustrates the invoice discounting and factoring process
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highlights the challenges that can arise in relation to the purchase of a receivable, and
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provides a brief overview of the UK-based trade association for asset based financing (including receivables finance)

Distinguishing between invoice discounting and factoring

Both invoice discounting and factoring facilities involve the purchase of receivables from a client by the receivables purchaser at a discounted rate.

The principal difference between the products is whether the sales

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