What is Debt Factoring?

Debt factoring is another term used for invoice factoring, which is when a business sells its invoices to a third party at a discount, allowing them to immediately unlock the cash tied up in unpaid invoices.

As your debt factoring company, we will pay your business a percentage of the total amount charged to the client, taking full responsibility for collecting the payment.

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

  • How debt factoring works
  • The different types of debt factoring
  • The advantages and disadvantages of debt factoring
  • Is debt factoring right for your business?

How does debt factoring work?

Debt factoring is a form of business funding and uses one of the most significant assets your business has - your accounts receivable.

1

Your debt factoring provider will chase the debtors for payment of the invoices and collects the full invoice payment from your customer and pays you the outstanding amount, minus a small fee.

2

The business will be given up to 90% of the invoice value almost immediately from the point of raising the invoice, therefore reducing the cash deficit for the small business.

3

Debt factoring companies are proven to help businesses grow and prosper and is an excellent alternative to a bank overdraft.


What are the different types of debt factoring?

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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.


Advantages and disadvantages of debt factoring

Advantages of debt factoring:

  • Improved cash flow - release money tied up in unpaid invoices and boost your cashflow
  • Save time- relieve your business of the burden of credit control and concentrate on your core business
  • Bargaining power - debt factoring 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

Disadvantages of debt factoring:

  • Reduces overall profit - the factor always charges a percentage of the overall invoice value
  • It's the solution to only one problem - factoring solves just one problem - cash flow limitations due to clients paying later than they should be. It should therefore only be used to solve this problem, rather than business loans and lines of credit which can be used to help with all sorts of business needs

Is debt factoring right for your business?

Generally speaking, debt factoring is 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


What are the advantages of working us as your debt 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 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.


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."

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Get in touch

Contact one of our debt factoring experts today on our freephone

0808 250 0859

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


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.


Complete this form for a no obligation debt factoring quote

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

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