Invoice Factoring

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What is Invoice Factoring?

Invoice Factoring is a commercial finance product that can be used to raise money for a business using their outstanding invoices. It is designed to improve cash flow by releasing funds from the debtor book.

A set percentage of the invoice is released to your company immediately by the lender. The remainder is then released when it is paid, minus an agreed percentage which is paid to the lender.

Invoice finance can be broken down into two main products, invoice factoring and invoice discounting. Invoice factoring, in particular, is often used to solve issues associated with customers taking too long to pay or requiring regular chasing.

Our experienced invoice factoring specialists are on hand to secure you the best terms by comparing lenders from across the whole market.

Read on below to find out more or fill in the form to talk to an expert.

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How Does it Work?

Invoice factoring is designed for companies who are either smaller or do not have robust credit control systems in place. It g is designed to fund your entire sales ledger. When taking out a factoring facility, the lender will take over credit control.

As a result of the lender’s role in credit control the facility is, by nature, ‘disclosed’. That means your customer will be aware of the fact you’re using a factoring facility.

The full-service approach, including credit control, is more secure for the lender, meaning this will usually offer the highest advance amount. High advances combined with the inclusive credit control means your business will save considerable time and will have maximum cash flow.

This allows business owners to focus solely on their company’s progress, with far less time concerned by credit control and managing cash flow. The flip side to this is that customers will know that this type of funding is being used due to the lender’s control of your outstanding invoices.

Invoice Factoring in Practice

  1. You send your invoice to clients and copy in your lender. The invoice usually dictates payment to an account other than your main bank, usually a lender controlled account that is used specifically for factoring.
  2. Once the invoice is paid, your lender will let you know and the remainder of the funds due to you are released.
  3. The lender will then release the funds to you, usually the same day or within 24 hours.
  4. The payment is chased for you, meaning you can focus on delivering the next order, without worrying about payment.

Working with ABC Finance Ltd

We are focused on saving UK businesses money. We strive to find the cheapest and most suitable products for each client. Every business is different, and we tailor each quote individually, working with industry-leading companies to secure you the best possible terms.

We take the hassle out of finding the best factoring facility, advising you every step of the way and managing the process through to a speedy completion.

We aren’t tied to any individual lenders and, as such, can focus solely on finding the right deal for you. On top of this, we don’t charge for our service, meaning there are no broker fees to pay at the end of the process.

The Benefits & Drawbacks of Invoice Factoring

As with any financial product, there are pros and cons to invoice factoring. Our expert team are on hand to help you decide whether it’s right for you but here are the main points to consider:


  • Cash flow is improved by taking out factoring as funds are released immediately. As soon as the invoice is issued, funds can be released to your bank.
  • By taking out a factoring facility, you have no need for a credit control team. In many cases, the cost of hiring a credit control team can far exceed the cost of invoice financing. As a result, factoring can offer you a fully managed credit control team for a fraction of the cost.
  • Due to the credit control services offered by lenders, you would no longer have to spend time chasing payments. This would all be done for you, leaving you free to focus on what you do best.
  • Lots of businesses accelerate growth using invoice factoring. The certainty of immediate payment means cash flow becomes far less of a worry. Often the funds released early can be put to good use to help the business.
  • Negotiate improved terms with suppliers due to your new-found ability to make prompt payments. Improved cash flow can be put to good use for this purpose amongst other things. The benefit in this area alone can often more than cover the cost of the facility.


  • Your customers will know that you’re using this method of funding, which may not be ideal for some business owners.
  • You lose control of outstanding debts, meaning you can’t manage a relationship with your customer if they are late paying. This is actually seen as a benefit by some business owners, however, as it means they can’t be leaned on by clients to accept late payments.

Is Invoice Factoring suitable for my business?

Yes, it is suitable for any B2B businesses that would benefit from improved cash flow. If delayed payments from creditors hold back your ability to efficiently run or grow your business, this could help.

By receiving payment almost as soon as the invoice is raised, everything from payroll to paying suppliers and managing growth becomes simple. The revolving funding line is designed to grow with your business and is naturally in tune with your busy periods.

When compared to other types of invoice finance and business funding options such as overdrafts, business loans and peer to peer lending, invoice finance is often the most flexible option. By transferring credit control to your lender, the benefit can easily outweigh the cost. The time saved worrying about chasing payments can now be spent on running your business.

Do I Have to Factor Every Invoice?

This type of finance providers fund every invoice raised. Therefore taking a high level of control of your debtor book. This tends to work well for companies in need of regular cash flow support.

Where you’re looking to fund a single invoice, or selective fund invoices on an ad-hoc basis, you should consider selective invoice discounting.

Is it Regulated in the UK?

This market is not regulated by the Financial Conduct Authority (FCA).

As such, you do not have the same consumer protections in place that you would have with a residential mortgage or other regulated finance agreement. This means that careful consideration must be taken when considering a new agreement.

Hidden fees and penalties tend to be the biggest areas of concern, although of course, the full agreement must be thoroughly checked.

The closest thing to a governing body is the Asset Based Finance Association (ABFA), which is a voluntary trade organisation.

If regulation is a key consideration for you, we can focus our search for funding around banks, which are always expected to follow FCA guidelines on treating customers fairly.

Is Factoring a Loan?

Factoring isn’t considered a loan, as you’re not actually creating a liability. Instead you’re taking an advance on money that is owed to you.

Business loans are actually handled very differently, with funds released as a lump sum and repayable over a set term.

Bad Debt Protection and Other Add-ons

Bad debt protection can be added to your factoring facility. It is designed to ensure that you receive payment even if your customer is unable to settle the invoice. Our lenders are able to offer full protection against bad debt, meaning you no longer have to worry about companies failing to pay.

In the event of customer insolvency, the whole process is managed on your behalf, meaning you don’t have to spend time negotiating with liquidators. This can save significant amounts of time and stress.

Bad debt protection and other add-ons increase the cost of your facility. Our expert advisors are able to talk through your options, explaining each product clearly to ensure you understand your options.

Call Us Today or Enquire Online

We are experienced factoring specialists and have relationships with all the top invoice finance lenders. By working with us, you can access the whole market through one quick, simple enquiry.

We manage the whole process for you, meaning you can relax while we negotiate with multiple lenders on your behalf to secure the best terms. Enquire online now or call us on 01922 620008 to get a free personalised invoice factoring quote.

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