Where a company which supplies goods or services on credit assigns, by way of equitable assignment, its unpaid invoices (that is, book debts or other receivables) to a finance company at a discount for immediate cash to provide working capital. The finance company charges a fee and interest on the amount advanced. Generally, the company retains responsibility for collecting the debts and administering its sales ledger. Invoice discounting can be:

- “Undisclosed”, where the customer is not aware of the invoice discounting agreement.

- “Disclosed”, where the customer is aware of the invoice discounting agreement.

- “Non-recourse”, where the finance company takes the credit risk of the invoices not being paid.

- “Recourse”, where the company retains the credit risk of the invoices not being paid. If invoices are not paid the finance company can sell them back to the company or receive payment under an indemnity from the company. The fees charged to the company reflect this risk.

Invoice discounting is similar to factoring.