Invoice factoring explained

Invoice factoring is a type of invoice finance which enables businesses to improve their cash flow by "selling" their unpaid invoices to a factoring company at a discount.

An advantage of invoice factoring is that the factoring company handles the credit control, so the business doesn't have to worry about wasting time and resources chasing invoices. This could however be seen as a disdvantage, as you may find that some of your clients prefer working with you directly and dislike the fact that they have to interact with your finance provider.

It is also important to remember that most invoice factoring companies are recourse arrangements, which means that you will be responsible for any unrecoverable invoices.

There is a service fee with any invoice factoring company in the UK but this is only deducted once the full payment has been collected from the customer.

Get a no obligation quote online or call us on the number below to have a chat with one of our invoice financing experts.

Get invoice factoring 0808 250 0859

What you'll learn about invoice factoring on this page:

  • How invoice factoring works
  • Invoice factoring advantages and disadvantages
  • The different types of invoice factoring
  • How much invoice factoring costs
  • If invoice factoring is right for your business

Invoice factoring - how does it work?

Supply the goods

Supply your customers with goods or services and invoice your customers as normal.

We handle the credit control

Your finance provider will release between 70% to 90% of the raised invoice value.

Your customers will pay the finance 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.

What are the advantages and disadvantages of an invoice factoring company?

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.

How much does invoice factoring cost?

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.

Is invoice factoring right for my business?

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.

Expand your operations

Invest in stock, machinery or equipment

Employ new members of staff

Fix long-standing issues with cash flow

Why choose us as your invoice 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.

We are a highly recommended debt factoring company 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 review

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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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.

Get an online invoice factoring quote now

Complete the form below and get a no obligation invoice factoring quote for your business

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

Learn more about invoice factoring in our blog

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