What is Invoice Factoring?
Are you fed up of waiting for your customers to pay?
Are lengthy payment terms and late customer payments putting pressure on you and your business, making it hard to keep up with expenses?
Invoice factoring dramatically improves business cash flow by releasing the funds that are tied up in your unpaid sales invoices.
Instead of waiting weeks for invoices to get paid, you can release up to 100% of the cash you are owed almost immediately.
What is the difference between factoring and invoice discounting?
Invoice financing offers two solutions: factoring and discounting. Both get you paid early for outstanding invoices.
Here’s the key difference:
- Factoring: Sell your invoices outright for a discount. The factoring company handles collections and notifies your customer. It’s faster but comes with higher fees due to collection services.
- Discounting: Get a loan against your invoices. You’re responsible for collecting payment from the customer (confidential transaction). It’s cheaper but requires good credit and you manage collections yourself.
What are the Benefits of Invoice Factoring?
Boost cash flow, save time and manage risk
Fast Funding
No more waiting for customers to pay. You can access funding within 24 hours of issuing an invoice.
Improved Cash Flow
Keep on top of staff wages, supplier bills and HMRC with immediate access to cash.
Uncapped Growth
Flexible funding with no fixed upper limit, so you can scale your business quickly.
Protection
Customer credit checking and optional bad debt protection reduces the risk of bad debts.
Saves Time
Spend more time growing your business, less time chasing payments (if credit control included).
Easy Access
No credit scoring or lengthy application process, get funding even if you have bad credit.
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Is Invoice Factoring right for my business?
It’s a good fit for B2B companies with creditworthy customers but slow payment cycles. If your business struggles with managing collections and you primarily sell on credit terms, invoice factoring can unlock trapped capital and streamline your operations.
Construction
Recruitment
Manufacturing
Wholesale
Printing
Transport
Security
Logistics
Couriers
Engineering
Frequently Asked Questions
Is invoice factoring a good idea?
Invoice factoring could be a good idea for any business that wants to release money from their invoices more quickly, improve cash flow or spend less time chasing late payments.
Is factoring right for my business?
Factoring can be a good option for businesses that need access to immediate cash but don’t have the time or resources to manage their own accounts receivable. It can also be a good option for businesses that are concerned about the risk of bad debts.
If you are considering it for your business, it is important to compare invoice factoring rates and terms from multiple factoring companies. You should also make sure that you understand the terms of the factoring agreement before you sign on the dotted line.
How do you qualify for factoring?
You must be selling your goods or services to other businesses (‘B2B’). Every factoring company will have additional requirements based on their specific risk assessment procedures and industry expertise. You should compare invoice factoring companies before making a decision.
How much does factoring cost?
The costs of factoring depend on various factors, such as your industry, creditworthiness, and invoice volume. But they usually consist of a service fee (expressed as a % of the value of each invoice) and interest which is charged daily on the amount advanced. Costs can vary quite a lot between lenders so it’s important to compare invoice factoring quotes and understand exactly what to look for when comparing quotes.
Is factoring regulated in the UK?
Factoring is not currently regulated by the Financial Conduct Authority (FCA). An industry-wide code of conduct is provided by UK Finance to ensure a fair service and integrity is provided for invoice factoring services.
What type of businesses use factoring?
Invoice factoring benefits businesses at any stage in their lifecycle and in virtually any industry including manufacturing, construction, transport, recruitment and professional services.
Compare invoice factoring companies that specialise in your industry sector.
How do I choose a factoring company?
Choosing the right factoring company for your business, on the best terms, is not easy. And getting it wrong can be very costly. It’s highly recommended that you let an experienced broker arrange a facility tailored to your specific needs and circumstances.
What are the disadvantages of factoring?
Factoring can be considered expensive when compared with other forms of finance but it is usually the most accessible and flexible option available. It’s always a good idea to compare invoice factoring benefits with any other funding options you are considering.
Is invoice factoring risky?
If you select the right factoring company, then it is not risky at all. In fact, it actually reduces risk because the factoring company regularly checks your customers and protects you against non-payment.