Invoice Factoring

Invoice factoring is probably the most well-known invoice finance product. Again, as with any invoice finance product, factoring allows you to free up the cash tied up in your unpaid invoices. The thing that stands factoring out from the other invoice finance products is that the factor (lender) purchases the invoices from your ledger and takes control of all collection.

Similar to the rest of the invoice finance product suite, factors will allow you to borrow up to 90% of the outstanding invoices on your sales ledger. Critically, because you have sold the invoices to the factor, this is not confidential and the factor will run a ‘shadow’ ledger and act as your accounts receivable department. Customer payments will also go into the factors’ trust accounts.

Less Hassle

Outsource the pain and hassle of chasing your invoices, as the factor takes that on.


Cashflow Boost

Increased cashflow, boosted by receiving a significant portion of your outstanding invoices as soon as you raise them, rather than in 30/60/90 days’ time.


Who is eligible?

If you sell to other businesses on payment terms, then factoring may be suitable for you. Factoring tends to work best for businesses with long payment terms and when you have debtors that are ‘difficult’ payers, and may require a nudge or push in order to get them to pay.

Factors like to have businesses who, whilst their debtors may be difficult, have got a decent track record of payment and little or no bad debt. This will mean a 2+ year track record, good quality debtors and good credit is a must.

An invoicing and billing process that has a high level of veracity is also important – being able to sign off on the work done/stamped timesheets is a positive and the clearer that is, the better for the factor.

Having said all that, there is a fair variety in the lenders and their approaches and risk appetites, so there should be a product for most businesses that sell B2B.

Similarly to other invoice finance products, the only thing that would preclude your business from all factoring lenders, is if your sales process includes up front billing up front, subscription revenues with high deferred income or billing with unpredictable marketing deductions or retentions.

How Much Does It Cost?

Costs are calculated similarly to all invoice finance products, whereby you will have a service fee (levied on turnover) and a discount rate (interest fee) levied on the funds you have outstanding at any given time.

It is worth noting that owing to the risk profile associated, non-recourse factoring tends to be significantly more expensive than recourse factoring. Either because a) the non-recourse facility has bad debt protection built in to the price (credit insurance) or b) the factor is pricing in the additional risk to them of your customers non payment.

In addition should expect to pay a setup fee, possibly annually, normally a few % of the ledger value; the administration associated with mirroring a ledger is high. There are the standard payment fees and account fees to consider, although these are negligible.

The Benefits

Business loans may be taken out for several reasons such as the need to maintain business operations, invest in equipment, or other manners to advocate growth. They are both beneficial for businesses and usually easy to obtain due to the multitude of lenders. 

Less hassle

Outsource the pain and hassle of chasing your invoices, as the factor takes that on. Easier to find time to manage the business – by outsourcing your credit control to the provider, you have more time to concentrate on what you do best, i.e. running your business


Competitive rates

As the factoring market is very competitive, with a number of providers active in this area, the fees you will pay are usually competitive


Avoid costly legal action

Because you obtain an upfront payment via factoring, and also have the option of asking the provider to chase up outstanding payments, you should avoid having to take expensive legal action against a debtor that doesn’t pay


It’s not a loan

As you’re not taking on debt with a factoring arrangement, there will be no credit check at application stage and your ability to obtain credit will not be affected


Extended payment terms

Using invoice finance may allow you to offer extended payment terms to some customers, as you know you will still receive payment within 24 hours regardless of how long you give them to make payment


Qualifing questions

Can I Borrow?