Differences between Factoring and Bill Discounting

Differences between Factoring and Bill Discounting

Though Factoring and bill discounting helps clients in different ways, there are certain difference between them as discussed here.

This may be with or without recourse seller factoring. In Bill Discounting all the bills are with recourse to the i.e., if the drawee or buyer fails, the liability falls on the drawer.

1. Rights to give notice in Factoring vs Bill discounting: In factoring a factor always reserves the right to give notice and right to collect the money. The right to collect the money is given to the factor by the client. But in bills discounting, there is no notice of assignment given to the drawee of a bill.

2. Bill collection and payment in Factoring vs Bill discounting: In factoring, the factor collects the bill on his own. Whereas in bill discounting, the drawee of the bill makes payment to the banker on the due date.

3. Nature of factoring and bill discounting:Factoring is a service agreement as well as financing arrangement. Bill discounting is purely a financial arrangement of a short-term nature.

4. Undertaking of service in Factoring vs Bill discounting: The significant difference between factoring and bill discounting is the way services are undertaken.

In factoring, a Factor undertakes service, based on the quality of the debtor, his past record and his credit worthiness. Whereas the credit worthiness of the drawer with the banker is responsible for the bill discounting facility.