Invoice Factoring
Invoice factoring is a business finance product that provides both funding against unpaid invoices and a credit control service. This improves your cash flow and saves you money as you don't need to employ credit controllers or handle the task yourself.
According to our research, the pricing offered by different factoring companies varies significantly, with some quoting 2.7 times more to the same customer. Whilst using these funding products is an excellent way to improve the liquidity of a UK company, you must be careful when selecting a provider.
That is why we offer a free, independent quote search for factoring. We can put you in contact with the best factors, the companies that provide these services in the UK, and we provide expert support and guidance.
GET AN INDEPENDENT QUOTE SEARCH
Or call Sean on 03330 113622, and he will find invoice factoring quotes for you.
What Is Invoice Factoring?
Invoice Factoring (also sometimes called accounts receivable factoring or financial factoring) is a business finance product that provides funding against unpaid sales invoices, along with a managed credit control service.
- Funding: money against your outstanding sales invoices and new invoices as you raise them, providing working capital that improves cash flow.
- Credit control support: help to collect outstanding invoices, saving time and the cost of employing credit control staff.
- Confidentiality: if required, credit control can be undertaken in your business name, so customers are unaware.
- Protection against non-payment: optional bad debt protection if you want cover against customer failure.
Is Debt Factoring Different?
No. Debt factoring is simply another term used to describe invoice factoring in the UK. It refers to the same process of releasing cash from unpaid sales invoices, with the factoring company providing funding and managing credit control.
How Does Factoring Work?
There are many different types of factored facilities, but in general, factoring of invoices works as follows:
- The finance company (factor) provides you with a prepayment against your invoices.
- The prepayment percentage can be up to 100% depending on circumstances.
- A 90% prepayment against a £100K sales ledger could release £90K of funding.
- This immediate cash injection can be used for any purpose.
- The factor provides credit control support to save you money & time. This feature distinguishes this product from other forms of receivables financing.
- Credit control activity can be undertaken in the name of your business.
- When customers pay, the balance of the invoice value (minus charges) is passed to you.
- As you raise new sales invoices so new invoice prepayments make more money available.
- In this way, the funding grows as your turnover and sales ledger grows. Companies that use factoring have far better cash flows through their business.
Recourse and Non-Recourse Factoring Explained
What Is Recourse Factoring?
Recourse factoring is the most common form of invoice factoring in the UK. It provides funding against your invoices and a credit control service, but without built-in protection if a customer fails to pay.
How Recourse Works in Practice
If an invoice remains unpaid beyond an agreed recourse period, the funding against that invoice is effectively reversed. In practice, this usually reduces the available funding on your sales ledger rather than requiring a direct repayment.
An Example of Recourse Factoring
If you receive an 85% prepayment on a £100 invoice, you could draw £85 immediately. If the invoice later exceeds the recourse period, that £85 would be deducted from your available funding. New invoices often offset this.
What Is Non-Recourse Factoring?
Non-recourse factoring includes protection against customer insolvency. The factoring company sets credit limits for each customer, and provided you invoice within those limits, you are protected if a customer fails.
Does Non-Recourse Cost More?
Yes. Non-recourse factoring includes a small additional charge, often called the credit protection element (CPE), which typically starts from about 0.45% of invoice value (+ VAT where applicable).
Not sure which option is right? We can compare recourse and non-recourse factoring quotes for you independently, just call 03330 113622.
How Much Cash Could You Raise?
The amount of money that you could raise will depend upon your industry sector and the nature of your business, typically 85% of invoice value but up to 100% (less charges) in some sectors.
Find out how much cash you could potentially raise with our free online factoring cash calculator.
What Does Invoice Factoring Cost?
On a selective basis (where you choose invoices to fund) you only pay for the invoices you submit, so there is no minimum cost, you pay for each transaction.
Examples Of Factoring Fees
If you want to fund against all your invoices, for an entire year, factoring fees start from c. £3,500 + VAT per annum, with a single fee, inclusive arrangements are available. The cost for your business will depend upon the type of facility that you want and the nature of your business. We can find quotations for you without obligation and our service is independent.
See these: Examples of the Cost of Factoring.
Alternatively, if you opt for the selective, single invoice finance option where you select the invoices to be funded you have no ongoing commitment to use the service in the future.
We do not charge you to use our quote search service. We may receive a commission from the finance company if you choose to proceed with them. However, on average, we still manage to save most customers money on quotes received from elsewhere.
Read our Factored Products Guide for more detailed information.
How Long Does It Take?
The providers will be able to work at a pace that suits you. A facility can be in place within a few days but our record is almost instant invoice factoring which took just 7 hours from initial enquiry to the funds being in our client's bank account. If you need the funding quickly, we have providers that can deliver.
Further Resources and Information
Below are links to further resources and information that you may find helpful:
- Compare the Cost Benefits of Factoring With Bank Overdraft - a cost-benefit analysis of the two options, where you can enter your values to make the comparison.
- Case Study - Invoice Finance For A New Start Business
- Research findings - results of a study where we spoke to a sample of clients who were using these services.
- Raising money against unpaid invoices
- Spot Funding Help - where you decide which invoices you want to factor.
- Alternatives To Using A Factored Service - an article setting out alternative finance sources.
- How Factoring Works - an article explaining the process in detail.
