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Understanding Credit Factoring
Understand how credit factoring works and whether it's the right finance solution for your business.
Boost your cash flow with credit factoring
We compare all factoring options for you, so you can rest assured you'll get the right product and the best deal for your business. Get a quote online or call us on 0808 250 0859 to speak to one of our cash flow finance experts.
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Pages in this SectionWhat is credit factoring?
Credit factoring is a type of invoice finance where a business sells its outstanding invoices to a finance provider (the "factor") in exchange for an advance on the invoice value. Typically, businesses can receive up to 100% of the invoice amount, with funds paid out as quickly as within 24 to 48 hours.
When the customer pays the invoice, the remaining balance (after fees) is transferred to the business. This solution is especially useful for businesses that offer long payment terms but need quick access to working capital.
Credit factoring is also another term used for invoice factoring.
How does credit factoring work?
The credit factoring process usually follows these steps:
1. Issue the invoice
You deliver goods or services and send an invoice to your customer.
2. Credit check and approval
The factoring company assesses the creditworthiness of your customer. Approval depends largely on your customer’s ability to pay, not your own credit history.
3. Sell the invoice
You submit the invoice to a factoring company.
4. Receive an advance
You’ll typically receive up to 90% (or more) of the invoice value within a couple of days.
5. Customer makes payment
Your customer pays the factoring company directly.
6. Final payment
Once the payment is received, the remaining balance is forwarded to you, minus any agreed fees.
Advantages and disadvantages of credit factoring
Advantages of credit factoring:
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Accelerated cash flow – Get access to funds within days instead of waiting 30, 60, or even 90 days for customer payments.
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No new debt – Unlike loans, factoring lets you unlock cash you’ve already earned without taking on additional liabilities.
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Flexible and scalable – Funding can grow in line with your sales; the more you invoice, the more working capital you can access.
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Outsourced collections – Many factoring companies handle collections on your behalf, freeing up time and resources.
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Customer credit checks – Factoring providers often perform credit assessments on your customers, helping you avoid bad debt.
Disadvantages of credit factoring:
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Service fees – Factoring comes at a cost. Fees vary based on invoice value, customer creditworthiness, and payment terms.
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Customer involvement – Since customers pay the factor directly, they’ll be aware of the financing arrangement, which may not suit all business relationships.
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Eligibility requirements – Factoring is typically available to B2B businesses with a track record of invoicing on credit terms. New or B2C businesses may find it harder to qualify.
Is credit factoring right for your business?
Credit factoring may be a good fit if your business:
Sells to other businesses on payment terms
Has cash flow tied up in unpaid invoices
Wants a funding solution that grows with sales
Needs working capital quickly and without taking on debt
How does credit factoring compare to other finance options?
|
Feature |
Credit Factoring |
||
|
Access to funds |
Fast |
Fast |
Slower |
|
Involves taking on debt |
No |
Yes |
Yes |
|
Customer involvement |
Aware |
Unaware |
Unaware |
|
Handled by factor |
Retained by business |
Not applicable |
|
|
Flexibility |
High |
High |
Usually fixed |
We are an award winning factoring company
Innovation in the SME Sector 2024
Alternative SME Lender of the Year 2023
SME Lender of the Year 2023
Best Use of Technology 2023
Best Provider 2023
Our factoring service is 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."
Read full reviewFactoring has been revolutionised with our digital onboarding process
Get in touch today
Contact one of our debt factoring experts today on our freephone
0808 250 0859
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Want to learn more about how you can boost your businesses cash flow?
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We explore ways you can begin improving your cash flow situation and start getting your business on track to positive 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 service
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.
