Invoice Factoring


Invoice factoring provides a flexible funding line for your company using your outstanding invoices as collateral. By treating your invoices as assets the invoice finance company can release up to 90% of the face value up front with the rest on payment (minus the invoice finance company’s fee).
An invoice finance facility can:

  • Unlock capital held in unpaid invoices immediately;
  • Free up funds for use in business expansion or paying creditors;
  • Provide credit control facilities, letting you deploy staff to other business areas or eradicating credit control expenditures altogether;
  • Provide protection from bad debt by credit checking customers and fully insuring you against failed payments.

What’s more, with invoice finance you’re borrowing on a one-to-one basis with the assets you’re handing over to the lender (i.e. your invoices) so that theoretically you can’t get out of your depth by taking on more debt than you can realistically pay back.

This is a great solution for any business who wishes to improve their cash flow but is reluctant to borrow from banks or other forms of lending, Invoice factoring keeps a tight lid on what you borrow as you have already earned the money, you won’t be stuck with large monthly payments like you are for a loan.

How does Invoice factoring work?

– You invoice your customer for goods and services and then send the details of the sales invoice to the factoring provider.

– On receipt of the invoice the factoring provider  will typically release up to 90% of its value within 24 hours of it being raised , minus a small fee. The remaining is held until the invoice is paid. They will undertake credit control and collections on your behalf. This includes the sending of statements and chasing paymenys until they are made.

– Your customer the pays the factoring provider in full.

– The remaining funds are then released to you.

Compared to other types of business finance , invoice finance is a cost effective solution, and is competitive in price with bank funding. They are tailored to suit each business so the costs can vary. The basic costs tend to include interest on the borrowed amount (this would be a percentage over base rate), a commission cost and re-factoring costs (these apply when a customer pays late or fails to pay and the debt is rolled over) eg 1% per month on the outstanding debt. When comparing an invoice factoring company to using a bank as an invoice lender, they may appear to look cheaper with a perhaps lower interest rate. However these are more likely to haver debts roll over as they don’t focus as much on collecting the invoice as a specific invoice factoring company would do, so this would save you money, time and stress.

The following comparison illustrates starkly how lower rates and fees can mask higher overall charges for invoice factoring:

A company wishes to borrow £1,000 against an invoice of 60 days.

  • Factor 1 charges 3% on advanced money plus a 1% commission on turnover. Their refactoring charges are 1% per month and their invoices are collected, due to inefficiency, in 70 days (10 days over the 60 day period agreed).
  • Factor 2 also charges 3% interest but charges 1.5% commission. Their refactoring charges are also 1% per month but they collect payment in only 50 days.

In this example the company ends up paying £18.30 more in fees to Factor 1 due to their poor credit control procedure. While that may not sound a lot, imagine that instead of a one-off invoice the company is borrowing £100,000 or £500,000 over the course of a year. This is why we always recommend you get a range of quotes and speak to the lenders in detail to make sure you are getting the right deal and payment will be chased promptly.