Invoice factoring

Invoice factoring: cash advanced, credit control handled for you

The most common form of invoice finance in the UK. A funding partner advances against your invoices and takes over collecting them.

How it flows1You invoiceWork delivered,invoice raised2Provider advancesUp to 85% ofinvoice value3Provider collectsDirect from yourcustomer4Balance to youRemainder,minus their fee
Invoice factoring is where a funding partner advances a percentage of an invoice's value, typically 80 to 90%, then collects payment directly from your customer and releases the remaining balance (minus fees) once it is settled. The partner also runs credit checks and chases late payers, which makes factoring the fastest way to add a credit-control function you do not already have. See the full definitive guide for a step-by-step explainer.

Who it suits

  • Businesses without a dedicated credit-control or collections team
  • Fast-growing companies adding new B2B customers regularly
  • Recruitment, wholesale and manufacturing businesses with 30–60-day terms
  • Businesses comfortable with customers seeing a funding partner on statements

Worked example

A business invoicing £85,000 a month on 60-day terms, factoring at an 85% advance rate:

Illustrative, based on typical UK market ranges
Monthly invoicing£85,000
Advance rate85%
Advanced within 24–48 hours£72,250
Held back until customer pays£12,750
Service fee (1.5% of turnover)–£1,275
Discount fee (base + 2%, ~60 days on drawn funds)–£860
Net released after customer pays£10,615

Cost anatomy

FeeWhat it coversTypical range
Service feeCredit control, collections, sales-ledger administration0.5–3.0% of turnover
Discount feeCost of the funds advanced, charged on drawn balanceBase rate + 1.5–3.5%
Fees to watch for
  • Minimum monthly usage charges applied even in months you did not draw funds
  • CHAPS or same-day transfer fees added on top of the advance
  • Annual audit fees for reviewing your sales ledger
  • Auto-renewing contract terms with an early-exit penalty
  • Concentration limits that cap funding once one customer passes a set share of your book

Frequently asked questions

Will my customers know I use invoice factoring?

Usually yes. The funding partner collects payment directly, so invoices carry a payment reference in their name and their credit-control team may contact your customers on overdue accounts. If you would rather your customers see nothing has changed, look at invoice discounting instead.

Does factoring take over my credit control?

Yes, that is the point of it. The funding partner runs credit checks on new customers, chases payment and manages collections, which is why factoring suits businesses without an in-house credit-control team.

Can I factor just some customers, not my whole book?

Whole-book factoring is standard, but some partners offer selective options. If you only want to fund specific invoices rather than commit your entire ledger, selective invoice finance is usually the better fit.

What is recourse vs non-recourse factoring?

Recourse factoring means an invoice unpaid past an agreed date is deducted back from your account, you carry the bad-debt risk. Non-recourse factoring includes bad-debt protection at a higher cost, so the funding partner absorbs a defined level of that risk instead.

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Related
Invoice finance overviewInvoice discountingSelective invoice financeWhat is invoice factoringFactoring vs discountingEligibility

Last reviewed: August 2026

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Two minutes, soft checks only, no impact on your credit score.

See how much you could release