Understanding invoice factoring in the UK

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Key takeaways

  • Invoice factoring provides immediate financial stability by allowing businesses to sell outstanding invoices for a significant upfront cash boost.
  • Factoring companies offer crucial support by quickly freeing up cash and providing credit protection, ensuring businesses have immediate access to funds.
  • The straightforward factoring process boosts cash flow by paying businesses a large percentage of their invoices' value almost immediately after sale.
  • While factoring improves cash flow and working capital, it requires transparency with clients about the involvement of a factoring service and relies on the provider for customer communications and credit control.

What is invoice factoring?

Invoice factoring is a form of invoice finance where you sell your outstanding invoices to a factoring company. This financial strategy enhances cash flow and ensures financial stability by providing your business with a substantial portion of the invoice value upfront.

Factoring in business not only improves liquidity but also transfers the responsibility of collecting payments from customers to the factoring company. This arrangement is especially advantageous for companies aiming to manage their revenue more predictably and improve liquidity.

What is the role of the factoring company?

A factoring company, or factor, plays a crucial role in the factoring service by taking on the task of recovering payments on unpaid invoices, thus freeing up cash within 24 hours.

Choosing Novuna as your factoring company also offers the added benefit of credit protection, safeguarding businesses against the risk of customers failing to settle their invoice payments. This level of security is invaluable in invoice finance transactions, offering peace of mind alongside immediate financial relief.

What is the role of the factoring company?

Factoring invoices in the UK involves a straightforward process:

  • Deliver goods or services and invoice your customers as usual.
  • "Sell" the invoices to a factoring company like Novuna, which verifies their validity and pays you most of the invoiced amount immediately—typically up to 80-90%.
  • Your customers settle their invoices directly with the factoring company, which assumes the role of chasing payment if necessary.
  • Receive the remaining invoice amount, minus the factoring service fee, once full payment has been collected.

Invoice Factoring FAQs

What are the other 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 will suit your business, here is a brief guide to our five options:

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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.

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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.

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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.

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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.

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:

  • You will be putting your trust in your invoice factoring provider to handle credit control and communications with your customers
  • Potentially some customers may not understand invoice factoring and will wonder why the company has decided to use it

Is your business eligible for invoice factoring?

Is your annual turnover £50,000+?

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.

Do you have high up front costs?

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 flor problems.

Are you experiencing cash flow problems?

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.

How can an invoice factoring facility help your business?

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 as your factoring company?

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.

Our factoring service is multi-award winning

We also come highly recommended by our existing 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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We've revolutionised factoring companies in the UK 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.

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

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