Invoice Factoring

Take control of your cashflow with funding and credit control

  • Offer extended terms to clients
  • Save time & money
  • Improve cashflow

Invoice Factoring

Step 1

You invoice your clients as normal and also send a copy of the invoice to the lender.

Step 2

You receive up to 90% of the gross invoice value straight away.

Step 2

You receive up to 90% of the gross invoice value straight away.

Step 3

The lender does the credit control and forwards you the remaining 10% when collected, minus fees.

Over

Companies in the UK
using Invoice Finance

Over

Billion invoices
funded in the UK

Over

Coffees consumed at
Contact Business Finance

What is Invoice Factoring?

Factoring is a facility associated with the invoice finance industry. Like all invoice finance facilities, factoring allows you to release cash from outstanding invoices. One key feature of a factoring facility is that it includes credit control. This can save you time and money as you no longer need to chase your clients for payment.

How does Invoice Factoring work?

Factoring is a straightforward facility that allows you to release up to 90% of the gross invoice value, the same day you raise the invoice. A factoring facility with the right lender can work wonders for businesses that are cash hungry but do not have the time to chase invoices. The process is simple:

  1. You send your invoices to your clients as normal and then to the invoice finance lender
  2. They release up to 90% of the gross invoice value straight away
  3. The invoice finance lender then conducts credit control and chases payments when they are due
  4. The remaining 10% is made payable to your business once your client pays, minus the lenders charges which are typically 1-3%

Example

Invoice Value £1,000 £5,000 £10,000
Cash from the lender on day one (90%) £900 £4,500 £9,000
Cash from the lender once client pays (10% minus fees) £80 £400 £800
Lenders fee (based on 2%) £20 £100 £200

How much does Invoice Factoring cost?

There are over 60 different factoring companies in the market who all charge different rates. This includes banks, independent lenders and other finance houses. Your business will generally get a better rate the larger the turnover, but it also depends on your industry and how much you are looking to borrow. A factoring facility will generally cost anything from 1-3% of the invoice value.

What are the advantages of Invoice Factoring?

Improves your cash flow – factoring allows you to grow your business by getting paid quicker. This allows you to have the working capital to move on to the next job / order sooner.

Not a loan – unlike a loan, your company is not under the spotlight. Factoring is based on your client’s credit history and not your own.

Scalable & secure – as your business grows, so does your funding. You can only borrow against cash that you are already owed by clients.

Release up to 90% of the invoice value – this is not only for future invoices, but you can also drawdown against your existing sales ledger as long as the invoices are not older than 90 days.

Speed – you can release cash from an outstanding invoice on the same day. Therefore, you no longer have to wait to get paid which means you can move onto the next job sooner.

Save time & money – you no longer have the hassle of chasing payments and can concentrate on more important things. 

What are the disadvantages of Invoice Factoring?

B2B sales only – factoring companies will only fund invoices that are raised to other businesses.

Terminology – not all lenders use the same terminology and it can be very confusing if you are new to factoring. We can help you understand this financial jargon.

Confidentiality – factoring is fully disclosed, so your clients know that you have a facility. Some business owners prefer to keep their funding solutions confidential. If that is the case then invoice discounting could be more suitable for you.

Is Invoice Factoring a good idea for my business?

If you are a cash hungry business and constantly need a steady cashflow, then invoice factoring could be a great solution for you. Waiting 30, 60 or even 90 days is simply too long. Unfortunately, when you start dealing with bigger clients, they often take longer to pay even if you strictly offer specific payments terms.

A factoring facility allows you to offer extended payment terms, giving you the opportunity to work with bigger businesses and grow your company. Invoice factoring does not only allow businesses that much needed working capital, but it also saves you time and money as credit control can be outsourced to the lender.

Is Invoice Factoring regulated?

Invoice factoring is currently not regulated by the Financial Conduct Authority. There are however bodies that oversee fair practice such as UK Finance, previously known as ABFA (The Asset Based Funding Association).

What is Full Factoring?

Full factoring refers to a facility in which the business includes all their clients sales invoices and receive the maximum amount of funding available from their sales ledger.

What is the process of a factoring facility?

  • You send your invoices to a factoring company
  • They release up to 90% of the gross invoice value (inc the VAT)
  • The factoring company chase debts when they are due and conduct credit control
  • The remaining 10% is payable back to your business once your clients pay (minus the lenders charges).

How do you factor an invoice?

  • Speak to Contact Business Finance today
  • We introduce you to the most suitable lender
  • You enter an agreement with a factoring company that suits your needs
  • You then send invoices to the lender and receive payment straight away

Is Invoice Factoring considered a loan?

Invoice factoring is a form of invoice finance and is often misconceived as a loan. Factoring involves a lender purchasing the sales invoices of a business for a discounted rate. The business can then use this money to contribute towards their growth plans.

Factoring is more scalable and secure compared to a business loan. This is because your borrowing increases in line with your sales and you can only borrow against sales invoices (money you are owed by clients), you just no longer have to wait 30, 60 or even 90 plus days to get paid.