Invoice factoring
A finance company pays you most of the value of your unpaid invoices straight away, then collects payment from your customers and pays you the rest, minus its fees.
- Secured on invoices
- Personal guarantee likely
How it works
Factoring is one of the two main kinds of invoice finance. The other is invoice discounting, where you keep collecting payments yourself.
- You send an invoice to your customer and a copy to the factor.
- The factor pays you up to 90% of the invoice value, sometimes within 24 hours.
- The factor runs your sales ledger and collects payment from your customer.
- When your customer pays, the factor pays you the balance, minus its charges.
Your customers usually know you use a factor, because they pay the factor directly. Some providers offer protection against customers who do not pay. Without it, you carry the risk of bad debts.
Upsides and downsides
Upsides
- Turns unpaid invoices into cash quickly
- The amount available grows as your sales grow
- The factor handles credit control and collections, which saves you time
- Does not usually need property as security
Downsides
- Your customers deal with the factor, which some businesses do not want
- Fees reduce your margin on every invoice
- Contracts can have minimum terms and fees for leaving
Risks
- Unless you have bad debt protection, you must repay the advance if a customer does not pay
- Becoming dependent on the facility and finding it hard to leave
- A personal guarantee or indemnity can make you personally liable
What it costs
- How it is priced
- A service fee for running your sales ledger, plus a charge on the money advanced
- Costs that are easy to miss
- Minimum fees, contract terms and charges for ending the agreement. Check them before you sign
- Extra cost for protection against customers who do not pay
- The provider may ask for a personal guarantee or indemnity from the directors
Up to 90% of the value of approved invoices, rising and falling with your sales.
Have a quote? Cost of invoice finance: work out a typical year's fees
Does it fit?
Could fit when
- You sell to other businesses and wait 30 days or more to be paid
- Your sales are growing and cash is tied up in unpaid invoices
- You would like help with credit control
Unlikely to fit when
- Your customers are consumers or pay on the spot
- You do not want customers to know you use invoice finance (invoice discounting may fit better)
- Your margins are too thin to absorb the fees
- Your unpaid invoices are worth less than the amount you need
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company, Community interest company, Co-operative or community benefit society, Charity
- Needs sales (revenue)
- Only for businesses that sell to other businesses
- You invoice other businesses on credit terms
- The provider assesses your customers' credit as well as yours
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all asset-based and specialist lending
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- Aged debtors report
- Customer details
- Contracts and terms
Regulation and protections
Invoice finance is commercial finance, which is not generally subject to statutory conduct regulation in the UK. Providers that are UK Finance members follow its Invoice Finance and Asset-Based Lending Standards Framework. After using the provider's own complaints process, clients can use a free independent complaints process run by CEDR, with awards of up to £50,000.
Types of provider: Bank-owned invoice finance providers; Independent invoice finance companies; Online invoice finance platforms.
Also consider
Sources
- British Business Bank: Working capital finance options · checked 7 October 2026
- UK Finance: Invoice finance and asset-based lending · checked 7 October 2026
- UK Finance: The Standards Framework for Invoice Finance and Asset-Based Lending (January 2025) · checked 7 October 2026