Though both factoring and bill discounting provides short term finance, however in bill discounting the drawer undertakes the responsibility of collecting the bills and pay the proceeds while in factoring it is the factor that usually undertakes the responsibility of collecting the bills. Given below are some more differences between the two –
1. Bill discounting is always of recourse type while factoring can be either with or without recourse. In case of recourse the factor does not assume the credit risk and it is the company which assumes the credit risk.
2. Factoring is an off balance sheet entry in the sense that both amount of receivables and bank credit are not shown in the balance sheet which is not the case with the bill discounting which is shown in the balance sheet.
3. In bill discounting there is only provision of finance while in factoring factor provides in addition to finance facility other facilities like sales ledger maintenance, collection etc..
4. Discounted bills may be re-discounted several times before they mature for payment which is not the case with factoring.