What is a factoring company and how does the invoice factoring process work?

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What is a factoring company?

A factoring company buys a business' unpaid invoices in return for a factoring fee which is deducted once the full payment has been collected from the customer. A factoring company enables businesses to release cash by purchasing their invoices at a discount.

Most factoring companies are recourse arrangements, which means that you will be responsible for any unrecoverable invoices.

What is invoice factoring?

Invoice factoring is when a business sells its invoice to a third-party company. It's a form of invoice finance and will give your business an effective way to improve its cashflow position.

The invoice factoring provider provides the credit control service to recover payment of the unpaid invoice. Invoice factoring companies allow you to release cash from your unpaid invoices quicker than having to wait between 30 to 90 days – and sometimes up to 120 days – for your customers to pay you.

As your acting invoice factoring provider we handle your credit control, allowing you to concentrate on other areas of the business instead of chasing up late payments.

How does the factoring process work?

  1. Supply the goods: Supply your customers with goods or services and invoice your customers as normal.
  2. Your factoring company will handle the credit control: Your factoring company will release up to to 90% of the raised invoice value. Your customers will pay the factoring company directly and chase payment of the invoices on your behalf.
  3. You receive the money: Once the customer settles the invoice, the finance company will release the remaining invoice amount to you minus the relevant fees.

What are the advantages of working with Novuna Business Cash Flow as your invoice factoring company?

  • Flexibility - your funding line increases at the same rate as your turnover meaning that you don’t need to renegotiate terms.

  • Improved cash flow - release money tied up in unpaid invoices and boost your cash flow.

  • Bargaining power - Invoice Discounting can help you to negotiate better terms with your suppliers.

  • Faster growth -  grow your business at a much faster rate due to the flexible funding line.

  • Award-winning service - benefit from our award-winning client service.

We are an award winning factoring company

Our invoice factoring service comes highly recommended by our customers

"The communication and support has been outstanding. Providing me with all the information I needed regarding new clients coming onto our books. The system they use is so user friendly and the drawdown payments are very efficient in the fast moving world of temporary payroll."

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UK invoice factoring has been revolutionised with our digital onboarding process

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Please note that costs are an estimate only and are based on the entered values. Your final quote may change once a Business Development Manager has assessed your business in more detail.

What are the advantages and disadvantages of invoice factoring?

Advantages of invoice factoring:

  • Benefit from improved cash flow
  • Enjoy better working capital, which means more money for growth projects, staff training or stock purchases
  • Be able to move away from more restrictive forms of finance, like small business loans or overdrafts
  • Benefit from your chosen finance provider’s in-house credit control processes
  • Be able to focus on running your business, instead of chasing clients for payment

Disadvantages of invoice factoring:

There are some disadvantages of invoice factoring too - your clients will be informed that you’re using an invoice factoring service, and your factor will contact them to collect on factored invoices which means that:

  • The image of your company may be affected, particularly if your clients assume that you are not established enough to oversee your own credit control
  • You won’t be able to maintain your standard approach to client communication

What are the different types of invoice factoring?

The needs of SMEs tend to vary according to growth stage and industry. To help you work out which type of factoring financing will suit your business, here is a brief guide to our five options:


Spot Factoring

Spot factoring is a way for a business to access funds by selling unpaid invoices to a 3rd party, a spot factoring company, on a one off basis in order to receive payment quicker.


Reverse Factoring

Reverse-factoring is a financing option where a 3rd party financial provider finances the supplier on behalf of the buyerThe process involves the supplier, the buyer and the finance provider .The supplier sells the buyer’s unpaid invoice to the finance provider and receives the cash quickly, the buyer also gets longer to pay for its goods.


Account Receivable Factoring

Account receivable factoring provides businesses with an option to finance their venture without taking out a loan. This is a type of debtor finance where SMEs sell its invoices to a third party at a discount, in order to provide an immediate cash injection. There are many reasons why a business may factor an invoice, including increasing cash flow and mitigating credit risk.


Recourse and Non-Recourse Factoring

Resource factoring is a form of finance where a company sells its invoices to a factoring company. The factor pays the company a percentage of their cash value and then chases up payment of the invoices on behalf of the company. Non-Recourse factoring is a form of finance where a company sells its invoices to a factor and receives a percentage of the cash value from them.


Debt Factoring

Debt factoring is a finance facility provided by a debt factoring lender to help businesses leverage their acccounts receivable enabling them to instantly inject cash into the business. The debt factoring company pays the business a percentage of the total amount charged to the client and usually takes full responsibility for collecting the payment from the buyer.

Is invoice factoring right for your business and industry?

Generally speaking, invoice factoring facilities are best suited to companies that sell to other businesses on credit terms, and turnover more than £50,000 a year.

Invoice factoring can be used by any industry that sells products or services to another company but in particular industries that suffer cash flow problems due to the nature of their business.

Industries that experience high production costs, seasonal sales slow downs, slow paying clients, experience unexpected growth and other unpredictable costs affecting their day to day operational cash flow use factoring as a non debt solution to their cash flow problems.

These industries will include (but are not limited to) manufacturing, construction and service industries, trucking companies and staffing agencies.

Expand your operations

Invest in stock, machinery or equipment

Employ new members of staff

Fix long-standing issues with cash flow

Why choose Novuna Business Cash Flow

6 month trial period

A 6 month trial period so you can be sure the product is right for you, followed by a 6 month rolling contract – we don’t tie our clients in for long periods.

Digital onboarding

We are the first in the market to offer a digital onboarding process and have been leading the way with our digital capabilities allowing clients to sign up within 24 hours from the first appointment.

Client Trust Account

Once you become a client you will be given your own trust account, meaning you will get same day availability on your funds. You can also view all of your invoices and payments online at a time suitable to you, 24/7.

No uncleared effects

We have heavily invested in our digital capabilities. This includes the auto allocation of payments using Artificial Intelligence. Ultimately this advance in technology means that our clients access money quicker as well as saving money on interest charges due to auto allocation.

Simple pricing

We aim to make the process of Cash Flow finance as simple and straightforward as possible. Our pricing is very straightforward to understand. For a no obligation quote or an informal chat you can call our friendly team today on 0808 250 0859.

Award winning support

We offer award-winning client services and individual Relationship Managers who are on the other end of the phone or out in the field to visit you in person.

Get in touch

Contact one of our invoice factoring experts on our freephone

0808 258 2297

8:45 - 17:15 - Monday to Thursday &
8:45 - 16:45 - Friday

Invoice Factoring FAQs

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Want to learn more about how you can boost your businesses cash flow?

Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.

We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.

Learn more about invoice factoring in our blog

Get an invoice factoring quote today

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If your customers are consumers, please contact our consumer finance division.

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