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What is invoice factoring?
Invoice factoring means selling your unpaid invoices to a third party at a discount. They advance you 70–90% immediately and collect the full amount from your customer — at a cost of 2–5% per month.
What is dynamic discounting?
Dynamic discounting means your existing buyer pays your invoice early in exchange for a small discount. No third party, no credit check, no loss of the customer relationship — and covered by the No Cost Enterprise Plan on Discount Flow.
Invoice Factoring vs Dynamic Discounting: The Complete Guide for Mid-Market Suppliers
Invoice factoring can provide fast cash, but at a steep price. For mid-market companies with established buyer relationships, dynamic discounting delivers the same working capital benefit at zero cost — while keeping the customer relationship entirely intact.
The cost difference
Invoice factoring on a $100,000 invoice
$3,000
At 3% per month (36% annualized equivalent)
Dynamic discounting on a $100,000 invoice
$0
No Cost Enterprise Plan for suppliers on Discount Flow. The 2% discount goes to the buyer, not to an intermediary.
Side-by-Side Comparison
| Dynamic Discounting (Discount Flow) | Invoice Factoring | |
|---|---|---|
| Cost to supplier | No Cost Enterprise Plan (Discount Flow) | 2–5% per month |
| Annualized cost | 0% to supplier | 24–60% annualized equivalent |
| Who collects from customer | Customer pays supplier directly | Factoring company collects |
| Customer relationship | Fully intact | Third party involved |
| Credit check required | None | Full creditworthiness review |
| Advance rate | 100% of discounted amount | 70–90% advance, remainder later |
| Time to cash | ~48 hours after acceptance | 24–48 hours after approval |
| Notification to customer | Customer accepts directly | Often requires customer notification |
| Who benefits financially | Buyer (earns 12–24% annualized) | Factoring company |
When to Choose Each Option
Dynamic discounting is best when:
- You have established, creditworthy buyers
- Payment terms are 30–90 days
- You want to preserve the customer relationship
- You want zero cost to you (supplier)
- Speed of setup matters
Invoice factoring may be considered when:
- Your buyers are slow-paying or unreliable
- You need to finance invoices from many unrelated customers
- You don't have direct negotiating leverage with your buyer
- You need off-balance-sheet financing (note: high cost)
Frequently Asked Questions
Does my buyer need to participate for dynamic discounting to work?
Yes — dynamic discounting requires the buyer's active participation, because they are the ones making the early payment. This is the key difference from factoring, where the factoring company can finance receivables regardless of the buyer's cooperation. Dynamic discounting is most effective for suppliers with strong, established buyer relationships.
Can I use both factoring and dynamic discounting?
Yes. Many suppliers use dynamic discounting for their key accounts (where they have direct leverage) and maintain a factoring facility for accounts where that is not possible. There is no exclusivity requirement on Discount Flow.
What happens if my buyer declines a discount offer?
Nothing — the invoice remains on its original terms. You can send another offer with different terms, or simply wait for standard payment. There is no cost for offers that are not accepted.
Related topics
Stop paying factoring fees — try the No Cost Enterprise Plan
Available to suppliers at no cost. No credit check, no bank approval, no minimum invoice size.
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