Confidential Invoice Factoring: Meaning, Features, Steps, Pros and Cons

Updated on: Mar 16th, 2023


8 min read

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Confidential factoring is a variant of invoice factoring where your customers need to be more informed about the fact that they are dealing with a factoring business. All other aspects concerning the factoring arrangement remain the same.

Meaning of Confidential Invoice Factoring

The word ‘confidential’ is tied with secrecy. It means information is restricted. With confidential invoice factoring, the factoring business will keep its identity hidden from the customers. The factor will pose as the business accounts department and use the business's name in all its communications with the customer. The customer will not be subject to any disclosure regarding the factoring arrangement.

Features of Confidential Invoice Factoring


The details regarding the invoice factoring arrangement will be confidential because it will not be made known to the clients or customers of the business. The factoring company will carry out all its operations in the name of the business, thus keeping the details of the arrangement privileged.

Quick access to funds

By entering into the invoice factoring arrangement, the business ensures that funds are kept from being tied up while awaiting customer payment. Instead, the financing arrangement helps the business get funds that can be put to better use.

Asset-backed financing

It is a form of asset-backed financing, which means that short-term borrowing is backed by an asset, in this case, unpaid invoices.


The factoring fee typically ranges between 0.5% to 5% of the total value of all the invoices submitted to the invoice discounting company.

Promotes growth

Growth is achieved when the business has a regular and healthy balance of working capital funds, allowing it to carry on with operations easily. The invoice factoring arrangement gives the business access to funds that could be used better.

Pros and Cons of Confidential Invoice Factoring


  • Timely inflow of cash

Once the invoices are submitted, the cash is released as early as 24-48 hours. This allows the business to carry on operations smoothly and effectively.

  • Healthy working capital fund balance

Since funds are not tied up due to delays in payments, the business will likely always have adequate funds to meet its working capital needs.

  • Better relationship with clients

Since the arrangement is kept confidential, the clients/customers are under the impression that the business has faith in their ability to make the payment of their dues eventually. However, they may only take kindly to a third party involved if they find out about the arrangement.


  • Net amount

The business needs to receive the full value of the invoices since there is a factoring commission to be paid. Therefore, there is an additional cost incurred while opting for invoice factoring.

  • Liability in case of non-payment

The burden of non-payment falls on the business. The business will have to make good the loss if the customers default on the payment due to the factor.

Steps in Confidential Invoice Factoring

  • Step 1Setting up the invoice factoring facility

The business decides on the factoring company they wish to get into a confidential invoice factoring arrangement.

  • Step 2: Raising invoices

Once the facility is decided and set up, the business will then proceed to raise invoices against the services provided by the customer. However, the factoring company will also send a copy of that invoice. 

  • Step 3: Release of funds

The factoring company then releases a certain percentage of the total value as advances towards the business as short-term borrowing to meet their working capital needs. 

  • Step 4: Collection arrangements

Next, the factor begins making arrangements to collect the dues from the customers. This involves having a customer service team ready, reaching out to the business customers and tracking the payments. They act as an outsourced unit, specialised in credit control/debt recovery functions on behalf of the business, using the business name in all their interactions.

  • Step 5: Tracking and collection of payments

Since this is a specialised external team handling the payment tracking on behalf of the business, the business can focus all its resources on carrying out its day-to-day operations. The factor’s team will track invoices due for payment and collect those dues.

FAQs on Confidential Invoice Factoring

  • Is a confidential invoice factoring a secured or unsecured form of borrowing?

Since the borrowing is given to the business in exchange for unrealised invoices, a quid pro quo concept is attached here. The short-term borrowing advanced by the factor is backed by invoices that amount to the value of the given advances.

  • Why is invoice factoring risky?

Except for recourse invoice factoring, all other forms of invoice factoring, including confidential invoice factoring, would run the risk of default made by the customers. These defaults would then become the burden of the business, which will then have to repay the short-term borrowing early taken from the factor.


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