Understanding invoice factoring

Where businesses sell their accounts receivable (invoices) to a third party (a factor) at a discount, in order to obtain immediate cash.

Do you think invoice factoring could help improve your cash flow?

Get an online quote or call us on the freephone number below to have a chat with one of our factoring experts.

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What is invoice factoring?

Invoice factoring (also known as debt factoring) is a form of invoice finance where businesses exchange certain or all pending invoices with a third party to boost their cash flow and revenue consistency.

In this arrangement, the factoring business will provide a substantial portion of the invoiced value upfront and subsequently takes on the responsibility of retrieving the payment directly from the client.

What is a factoring company?

A factoring company provides the service which recovers the payments of your unpaid invoices, allowing you to release the tied up cash within 24 hours.

With Novuna as your factoring company, you are also eligible for a credit protection solution which protects businesses from their customers potentially not settling their invoice payments. This acts as added security when engaging in invoice finance transactions.

How does a factoring service work?

Supply the goods: Supply your customers with goods or services and invoice your customers as normal.
Factoring companies will handle the credit control: The factoring business 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.
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.

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Other types of 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 3^rd 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 buyer. The 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.

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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 invoice factoring right for your business?

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.

With invoice factoring, you can...

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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Invoice Factoring FAQs

Once I have made contact with Novuna, how long will it take for someone to see me?

If you submit an online enquiry, we will to call you back within 24 hours (please note enquiries made during the weekend will be responded to within 48 hours).

Once we have spoken to you, an appointment can be arranged for the most convenient date and time. We can come and see you the next day if this suits you.

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Is invoice factoring regulated in the UK?

Invoice factoring is not currently regulated by the Financial Conduct Authority (FCA). An industry-wide code of conduct is provided by the UK Finance to ensure a fair service and integrity is provided for invoice factoring services. It is widely accepted that the regulation of the invoice finance sector would contribute to the increasing costs of its services. Therefore, this enables invoice factoring providers to remain competitive and provide a low-cost solution for businesses seeking to utilise invoice factoring services.

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Is invoice factoring considered a loan?

Technically speaking factoring is not considered a loan as it is a purchase of accounts receivable. The factoring company purchases future receivables (invoices) and provides the business with a percentage value of the invoice upfront. The remaining balance minus a fee is then paid to the business once the invoices have been settled. Rather than a business waiting a significant length of time for an invoice to be paid, invoice factoring enables a business to access cash quickly and easily.

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How effective is invoice factoring?

Invoice factoring can be highly effective, particularly if you’re running an otherwise healthy business that finds itself occasionally short of cash due to late-paying clients, seasonal peaks and troughs or the costs of paying staff.

We offer flexible funding options that can be tailored to the specific needs of your business. If your company continues to grow and develop, we can release more money to you quickly, without the need for re-negotiating your contract.

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How do I transfer from my existing invoice factoring provider?

If you wish to switch to us, we'll take care of everything. Simply contact us and arrange for one of our Business Development Managers to pay you a visit. Once you’ve decided to work with us, we’ll contact your current invoice finance provider and arrange for a transfer of your invoices to us. Your funds will then be with you within one to five working days.

If you face termination fees from your old provider, we can give you up to £1,000 towards them. We offer a six month trial period for our own services – if for any reason you decide to leave during this time, you won’t face any of the exit charges normally associated with standard contracts.

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Our company has recently experienced rapid growth, would invoice factoring be a viable option?

Companies experiencing rapid growth can often benefit significantly from invoice factoring services. In order to carry on growing and expanding, companies often need quick access to ready cash, but may sometimes struggle to balance the cost of meeting unexpected demand. Why not arrange a meeting with one of our advisors to find out if your business could benefit from invoice factoring?

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Is it possible to terminate an invoice factoring contract prior to the 12 month term?

If you’re already tied to an invoice factoring contract and wish to switch to Novuna Business Cash Flow, we can help to negotiate a transfer. We offer a six month no-obligation trial period during which you can leave at any time without facing the usual exit charges.

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