What is Invoice Factoring

Invoice factoring is one of the two main invoice financing options available to companies seeking to improve cash flow. The age old practice of supplying goods to a client and giving them 30 or more days to pay has been causing problems for years. Unless the seller has an immense level of existing ready cash, this practice is not sustainable over the long-term. Essentially, your company is waiting for payment and in the meantime, it is stuck in a rut because it can’t afford the cash necessary to expand in terms of purchasing new goods, hiring new employees etc.

Thanks to invoice factoring, companies are no longer at the mercy of their clients. Invoice factoring involves a provider giving you at least 80% of what the invoice is worth up front. The rest of the cash is paid when the client pays the balance. You will have to pay the provider a certain fee and an interest rate which varies from one provider to the next and can also change depending on the level of risk they assume.

Recourse or Non-Recourse?

For example, recourse factoring is less risky for the provider because your company is still responsible for the invoice being paid. If the client refuses or fails to pay on time, all legal fees involved in the recovery of the debt will be billed to you by the company and if the money is not forthcoming, your business needs to repay the provider. This is why it may be a better idea to opt for non-recourse factoring because the provider is fully responsible for the invoice and loses out if the client fails to pay. Though this is more expensive than recourse finance, it offers priceless peace of mind.

No DIY Invoice Collection

The real difference between invoice factoring and invoice discounting is that providers take invoice collection matters into their own hands with factoring. It is the provider who chases the client for cash and they use their own methods to extract payment. This could cause difficulties with some clients who won’t appreciate what they see as harassment. Furthermore, invoice factoring providers can refuse to allow you to do business with clients whom they believe to be a high credit risk. A potential loss in clientele could be the result.


As there are so many invoice factoring companies, a little bit of research should allow you to find the best value for money providers in the UK. Expect the interest rate to be 1.5-3% and there could also be credit management fees that generally range from 0.75-2% of the invoice value. As you can see, this is a relatively small amount of money to be paid to the provider who will give you a huge chunk of an invoice that has not yet been paid. For companies with cash flow problems, this seems like an unbeatable option.

There are some downsides to invoice factoring but you will have to discover for yourself if it is a reasonable alternative to traditional invoicing. A higher level of cash in hand could be the difference between the success and failure of your business in the long term.

We can offer you financial solutions to help keep your cashflow healthy. Request a quote now to find out how much invoice finance can save you.

Back to top