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Best invoice factoring companies UK

For any company (and especially for a new business) finding spare money for further investment can be extremely difficult. Not only does this lead to a stagnation of growth, it can mean that the hard work already put in could be put at risk. Many companies will search for funding or lending options that will give them the flexibility of payment that they need and ones that will allow investment with lower risk. Invoice factoring is one of these options and it can be a life-saver for any business that finds the lag between invoicing and receiving the payment a drain on their cashflow. If you fall into this category, read on to discover how to find the best invoice factoring companies in the UK.

What is invoice factoring?

Invoice factoring allows you to sell your invoices to a third party at a percentage value of the full amount. This lender will then usually take on the responsibility of managing your customers and ensuring that they pay their invoices. They make their money through the difference between the full amount of the invoice and the percentage that they have allowed your business to drawdown. Usually this is around 70 – 80%. The lender will also take an administration fee which is based on the “difficulty” of the invoices you have sold them. The more work they need to do to recover the debt, the more they will charge.

As a business you can either sell your entire sales ledger and have a monthly facility to draw down your percentage as required, or you can sell selected invoices – for example those who usually pay large amounts monthly.

The benefits of invoice factoring

  • The most important benefit of invoice factoring is that you get access to the value of the invoice before it has been paid. If your customer has 120-day payment terms, this can mean that you have those funds working for you, rather than for them for upwards of 3 or 4 months.
  • Invoice factoring also saves you time on your administration of your invoices and chasing the payments. Credit control can be a difficult task, especially when you want to avoid creating a bad relationship with your customer. Leaving this to a professional can take away that additional stress.

Invoice factoring lenders

While these types of lending arrangements are very common, it is important to do due diligence when deciding which invoice factoring lender to go with. Each will have a number of factors you should consider before signing on the dotted line:

  • What “factor” percentage are they willing to give you?
  • What is their fee and how much administration do they offer for this fee?
  • Will they allow you to choose the invoices that go into the ledger or will they want all of your invoices?
  • Do they accept invoices that are paid by overseas clients?
  • How long is the contract for and how flexible is it for you to leave when your cashflow issues are resolved?
  • Will your lender allow you to keep control of your customer relationships or will they take over entirely?
  • What level of credit worthiness do you and your customers need to have to be eligible?

Lenders will also have criteria that they need you to fit before they will agree to lend. These will vary depending on the lender, the factor percentage they want to take, the fee they will charge, your personal and business credit worthiness and your yearly turnover. 

When deciding you’re the right lender for you, we suggest you use an invoice factoring calculator to establish the criteria you are looking for and what your monthly payments could be. This will give you a list of possible lenders and you can compare based on your personal requirements.

Don’t forget that they are a number of other lending options for businesses – even those that are new or with a low turnover.

Invoice factoring is an excellent option if you have customers with regular payments or for those that pay after long wait times. As with all types of lending you should do your homework and this is where comparison sites and calculators can provide a wealth of knowledge to help you decide on the best invoice factoring lender for you.

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