Funding plus collections

Invoice factoring: funding with the chasing handled.

Factoring combines an advance against your unpaid invoices with a collections service run by the provider. For businesses that would rather not manage credit control in-house, it can free up both cash and time.

Discuss your options How it works

Initial discussionNo obligationIndependent broker guidance

Factoring facility — illustrative

Advance rate

85%

Credit control

Provider

Disclosed

Yes

Collections this week

Chased

14 inv.

Paid

9 inv.

Queried

2 inv.

Illustrative only. Every facility is priced and structured by the provider.

Provider chases

Your team focuses on the work

Credit control

Usually managed by the provider

Customer awareness

Typically disclosed

Often suits

Smaller or growing firms, lean back offices

Common add-on

Bad debt protection

What it is

What factoring actually is

With a factoring facility, you assign your invoices to the finance provider. They advance an agreed proportion of the value to you, then take responsibility for collecting payment from your customer when the invoice falls due. Once payment is received, the balance is passed to you less their fees.

Because the provider is dealing directly with your customers, factoring is normally a disclosed arrangement: your customers will be aware that payment should be made to the provider. For many businesses that is entirely acceptable, and a professionally run collections process can improve payment behaviour.

Factoring is often the first form of invoice finance a growing business encounters, partly because providers may be more comfortable offering it where in-house credit control is limited.

In brief

Provider typically handles collections and credit control

Usually disclosed to your customers

Can suit businesses without a dedicated finance team

How it works

Factoring step by step

Invoice your customer

You raise the invoice as normal, with a notice that payment is to be made to the finance provider.

Receive an advance

The provider makes an agreed proportion of the invoice value available to you.

The provider collects

Their credit control team follows up with your customer and collects payment when due.

Balance released

Once your customer has paid, the remaining value is released to you, less the service fee and discount charge.

Who it suits

Businesses this tends to fit

Often suits

Businesses without the time or staff to run credit control
Companies whose customers routinely pay late
Owner-managed firms that want to focus on operations rather than chasing
Businesses whose own credit control has become a barrier to funding
Sectors such as recruitment, manufacturing, haulage and wholesale

Questions we will ask

What do you sell, and to whom?
How do your customers pay, and how promptly?
How is your sales ledger kept and reconciled?
Do you already have any funding secured on your debtors?

Advantages

Cash flow and credit control in one

You get access to funds against your invoices and a professional collections process, without building an in-house function.

May improve customer payment behaviour

A structured, consistent follow-up process from the provider can shorten the time customers take to pay.

Optional bad debt protection

Many providers can add non-recourse cover, protecting you against a customer's insolvency within agreed limits.

Accessible for growing businesses

Because the provider controls collections, factoring can be available to businesses that might not yet qualify for confidential discounting.

Things to weigh up

Your customers will usually know

Disclosure is normal in factoring. Most business customers are familiar with the arrangement, but if confidentiality matters to you, invoice discounting may be worth exploring instead.

Someone else speaks to your customers

The provider's collections team represents your business. It is worth understanding how they operate and what discretion you retain over sensitive accounts.

Fees reflect the extra service

Because the provider is doing more, the service fee is generally higher than for discounting. Whether that represents good value depends on what running credit control would otherwise cost you.

The other forms it takes

The umbrella term

Invoice Finance

A way for businesses that sell on credit terms to access a proportion of the value of unpaid invoices before customers pay.

Invoice finance explained

Funding, you keep control

Invoice Discounting

Draw funds against your sales ledger while continuing to run your own credit control, often without customers being aware.

How discounting works

Fund what you choose

Selective Invoice Finance

Finance individual invoices or specific customers as the need arises, rather than committing your whole sales ledger.

How selective finance works

Questions

Factoring questions, answered straight

What is the difference between recourse and non-recourse factoring?

With recourse factoring, if a customer fails to pay you remain responsible for the debt. With non-recourse factoring, the provider takes on the risk of customer insolvency within agreed limits, usually for an additional fee. Which is appropriate depends on your debtor book and your appetite for risk.

Will factoring damage my customer relationships?

Not usually. Established providers run collections in a professional manner and factoring is a widely understood arrangement in UK business. That said, it is reasonable to ask how a provider handles collections and what say you have over particular accounts before you commit.

Do I have to factor every invoice?

A traditional whole-ledger facility covers all of your eligible invoices. If you only want to fund particular invoices or customers, a selective facility may suit you better.

What happens if a customer disputes an invoice?

Disputed invoices are typically excluded from funding until the dispute is resolved. Providers will usually work with you to resolve queries, but clear invoicing and good records reduce the chance of disputes arising.