What is Invoice Factoring?

Invoice factoring is a form of invoice finance that allows a business to release up to 85–90% of the value of its unpaid invoices within 24–48 hours, rather than waiting 30, 60 or 90 days for customers to pay. The factoring company also takes over credit control and collections on your behalf, freeing up your time to run the business.

For UK businesses, this immediate injection of working capital helps meet payroll and supplier costs, take on larger contracts and manage seasonal fluctuations without the constraints of waiting for customer payments. Standard factoring is disclosed to your customers, but some funders can carry out collections in a confidential manner, so your customers are not aware a factoring company is involved.

How Invoice Factoring Works

  1. You deliver your goods or services and invoice your business customer as normal.
  2. You send a copy of the invoice to the factoring company, usually via an online portal.
  3. The factor advances up to 85–90% of the invoice value, typically within 24–48 hours of the invoice being verified.
  4. The factor manages credit control, chasing payment from your customer professionally on your behalf.
  5. Your customer pays the factor on their normal terms.
  6. You receive the remaining balance, less the agreed fees.

Because funding is linked to your sales ledger, the amount available grows automatically as your turnover grows – making factoring well suited to fast-growing businesses.

How Much Does Invoice Factoring Cost?

The invoice factoring company will take out a legal charge known as a debenture against your invoices, allowing them to collect their money in the unfortunate event your business ceases trading. The main costs are:

  • A monthly service fee – the minimum fee the funder requires to make the facility financially viable, usually a percentage of turnover. This covers the credit control service.
  • A discounting fee – the interest charged on the funds in use.
  • Other fees – such as trust account fees, set-up fees and optional bad debt protection.

When you work with Wise Factoring, we explain how these fees compare between providers and negotiate reductions and waivers where possible.

Recourse vs Non-Recourse Factoring

With recourse factoring, if a customer fails to pay, the unpaid invoice comes back to your business. With non-recourse factoring (factoring with bad debt protection), the funder absorbs the loss if an approved customer becomes insolvent, up to an agreed limit. Non-recourse costs a little more but gives valuable protection if you rely on a few large customers.

Who is Invoice Factoring Suitable For?

Invoice factoring is often a good fit for businesses that:

  • sell to other businesses (B2B) on credit terms of 30–90 days
  • are newly established or growing quickly and need working capital to keep up
  • don’t have a dedicated credit control team
  • have won new contracts that need funding before customers pay
  • have been turned down for a bank loan or overdraft

We regularly arrange factoring across sectors including construction factoring, recruitment, logistics, courier and transport, manufacturing and business services. If you already use a factoring company and want better terms, see switching funders.

Invoice Factoring for New Start and Complex Cases

Because factoring is based largely on the strength of your customers rather than your own trading history, it can be available to new businesses and to directors with more complicated backgrounds. See how we arranged £150,000 of construction factoring for a new start business after a previous liquidation, and a £175,000 facility after another lender had declined the application.

Summary of Benefits

Factoring allows immediate access to a significant portion of the funds tied up in unpaid invoices. This rapid infusion of cash helps cover operational expenses, invest in growth initiatives, and address immediate financial needs.

The factoring company takes over the responsibility of collecting payments from customers. This frees up time and resources for the business, allowing them to focus on core operations rather than chasing late payments.

By converting accounts receivable into immediate cash, businesses can maintain a consistent and predictable cash flow, regardless of customers’ payment schedules.

Factoring lines can often be more flexible than traditional loans or credit lines. The funding available typically grows with the business’s sales, offering scalability and adaptability to changing financial needs.

Some factoring agreements include credit protection services, safeguarding businesses against potential losses due to customer insolvency or non-payment.

Factoring is usually quicker to set up compared to traditional lending options, providing swift access to funds without extensive credit checks or collateral requirements.

The immediate access to cash provided by factoring can facilitate business expansion, allowing companies to take advantage of growth opportunities or navigate seasonal fluctuations without financial constraints.

With optional credit protection services in place, businesses are often shielded from the risk of bad debts, enhancing financial stability.

These advantages make invoice factoring an attractive option for businesses seeking a rapid and reliable way to optimise cash flow and streamline their financial operations while outsourcing the collection process.

Why Use an Invoice Factoring Broker?

There are dozens of invoice factoring companies in the UK – from the major banks to specialist independent funders – and their pricing, contract terms, advance rates, sector appetite and security requirements vary considerably. With eight years’ experience in invoice finance and access to a wide lending panel, Wise Factoring compares the market for you, negotiates fees and terms, and matches your business with the funder most likely to say yes – saving you time and avoiding multiple applications.

Invoice Factoring Case Studies

We recommend having a conversation with us about your requirements, as we can arrange trials with certain funders on our lending panel. This will allow you to trial a factoring facility for up to six months. You can leave at any time with no exit fee, and at the end of the trial you would switch to a rolling contract. Other funders may waive the first three months’ service fee or reduce their set-up fees.

If you have robust credit control already in place, you may be more suited to invoice discounting, as you would retain the credit control. If you only need to fund the occasional invoice, consider single invoice finance. Watch our video on the difference between invoice factoring and invoice discounting on this page.

Frequently Asked Questions

Invoice factoring is a form of finance where a funder advances you 85-90% of the value of your unpaid invoices, and also takes over credit control and collection of payment from your customers on your behalf. This frees up cash tied up in unpaid invoices and removes the time and resource needed to chase payment.

Costs vary by funder and are based on factors such as your turnover, customer base and sector, but typically include a service fee (a percentage of turnover) and a discount fee (similar to interest, charged on the funds drawn down). We can compare quotes from multiple funders to find the most competitive rates for your business.

Standard invoice factoring is disclosed, meaning your customers will be aware a funder is managing collections. If confidentiality is important, invoice discounting may be a better fit, as it allows you to retain control of your own sales ledger.

Once a facility is in place, funds are typically released within 24-48 hours of an invoice being raised and verified. Setting up a new facility usually takes 1-3 weeks depending on the funder and the complexity of your business.

Yes. Because funding is secured against the strength of your customers’ credit rather than your own, invoice factoring can be accessible to businesses with a poor credit history or limited trading track record.

With invoice factoring, the funder manages credit control and collections on your behalf and the arrangement is usually disclosed to your customers. With invoice discounting, you keep control of your own sales ledger and collections, and the facility can typically be kept confidential. Factoring tends to suit businesses that want to outsource credit control, while discounting suits those with an established finance function who want to keep the relationship with customers in-house.

Funders will typically want to see recent management accounts or annual accounts, an aged debtor and creditor report, details of your customer base, and information on your business and how long you have been trading. As a broker, we help gather this and match it to the funders most likely to offer competitive terms.

This depends on the funder and the size and structure of the facility. Some invoice factoring facilities can be arranged without a personal guarantee, particularly for larger or more established businesses, while others may require one. We can help identify funders whose requirements best match your circumstances.

Yes. Invoice factoring is a popular choice for newly established businesses because funders focus mainly on the creditworthiness of your customers. Some funders will consider businesses from day one, provided you invoice creditworthy B2B customers.

With recourse factoring, the unpaid invoice is passed back to your business. With non-recourse factoring (bad debt protection), the funder covers the loss if an approved customer becomes insolvent, up to an agreed limit.

Yes. Many businesses switch to secure better rates, higher advances or better service. We can manage the switch between funders for you, including settling the existing facility.

Our Other Invoice Finance Services

Smiling business owner working at a desk with dual monitors in a modern office

Invoice Discounting

Invoice discounting is a valuable financial tool for businesses seeking enhanced cash flow management. With invoice discounting, businesses maintain control over their sales ledger while unlocking the cash tied up in outstanding invoices.

Healthcare worker assisting an elderly patient, representing healthcare staffing businesses supported by Wise Factoring

Single Invoice Financing

Single invoice finance, also known as Spot Factoring, allows you to receive an advance against single or selected invoices. This can be used as and when required, without the need for any long-term commitment.

Woman using a calculator for some calculations

Revolving Credit Facilities

Established businesses with a turnover above £1M often prefer a revolving credit facility. With no requirement to upload invoices and typically available without a personal guarantee, a revolving credit facility is a fantastic ‘In case of need’ product.

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Construction Finance

In the construction industry, Construction Finance is used to release cash against your applications for payment or payment certificates. It can also be used in other industries that receive staged or milestone payments throughout the term of a contract.

Business team smiling during a meeting to discuss company growth and funding options

Switching Funder

If your Invoice Finance facility is due for renewal, it’s worth reviewing your fees, service levels, funding amount and concentration limits to see if there is a better deal, or a more suited facility on offer in the market.