What is Invoice Factoring?

Invoice factoring in the UK offers businesses a powerful financial solution to optimise cash flow. This flexible funding method allows companies to swiftly access working capital by receiving an advance against their unpaid invoices from a factoring company.

The benefits are manifold: immediate cash infusion enables businesses to meet pressing financial obligations, seize growth opportunities, and navigate through seasonal fluctuations without the constraints of waiting for customer payments. Moreover, invoice factoring minimizes the burden of chasing late payments, as the responsibility for collection shifts to the factoring company. This can often be carried out in a confidential manner, so your customer is not aware of the Invoice Factoring Companies involvement. This streamlined approach not only boosts liquidity but also enhances operational efficiency, allowing businesses in the UK to focus on core activities and strategic expansion while ensuring a steady cash flow.

The Invoice Factoring company will take out a legal charge known as a debenture against your invoices, allowing them to collect their money in the unfortunate event your business ceases trading. 

You will agree a monthly service fee, which is the minimum fee the funder requires to make the facility financially viable for them. There is also a monthly discounting fee, which is the interest charged for the funds in use. There are other fees to take into consideration, such as trust account fees and set up fees. However, when you work with Wise Factoring we will explain how these fees compare between providers and will negotiate reductions and waivers where possible.

Summary of Benefits

Factoring allows immediate access to a significant portion of the funds tied up in unpaid invoices. This rapid infusion of cash helps cover operational expenses, invest in growth initiatives, and address immediate financial needs.

The factoring company takes over the responsibility of collecting payments from customers. This frees up time and resources for the business, allowing them to focus on core operations rather than chasing late payments.

By converting accounts receivable into immediate cash, businesses can maintain a consistent and predictable cash flow, regardless of customers’ payment schedules.

Factoring lines can often be more flexible than traditional loans or credit lines. The funding available typically grows with the business’s sales, offering scalability and adaptability to changing financial needs.

Some factoring agreements include credit protection services, safeguarding businesses against potential losses due to customer insolvency or non-payment.

Factoring is usually quicker to set up compared to traditional lending options, providing swift access to funds without extensive credit checks or collateral requirements.

The immediate access to cash provided by factoring can facilitate business expansion, allowing companies to take advantage of growth opportunities or navigate seasonal fluctuations without financial constraints.

With optional credit protection services in place, businesses are often shielded from the risk of bad debts, enhancing financial stability.

These advantages make invoice factoring an attractive option for businesses seeking a rapid and reliable way to optimise cash flow and streamline their financial operations while outsourcing the collections process.

We recommend having a conversation with us about your requirements, we can arrange trials with certain funders on our lending panel. This will allow you to trial a factoring facility for up to six months. You can leave at any time with no exit fee and at the end of the trial you would switch to a rolling contract. Other funders may waive the first three months service fee or reduce their set up fees. 

If you have robust credit control already in place, you may be more suited to an Invoice Discounting product as you could then retain the credit control. 

Watch our video on the difference between Invoice Factoring and Invoice Discounting on this page

Our Other Invoice Finance Services

Invoice Discounting

Invoice discounting is a valuable financial tool for businesses seeking enhanced cash flow management. With invoice discounting, businesses maintain control over their sales ledger while unlocking the cash tied up in outstanding invoices.

Single Invoice Financing

Single invoice finance, also known as Spot Factoring, allows you to receive an advance against single or selected invoices. This can be used as and when required, without the need for any long-term commitment.

Woman using a calculator for some calculations

Revolving Credit Facilities

Established businesses with a turnover above £1M often prefer a revolving credit facility. With no requirement to upload invoices and typically available without a personal guarantee, a revolving credit facility is a fantastic ‘In case of need’ product.

Construction Finance

In the construction industry, Construction Finance is used to release cash against your applications for payment or payment certificates. It can also be used in other industries that receive staged or milestone payments throughout the term of a contract.

Switching Funder

If your Invoice Finance facility is due for renewal, it’s worth reviewing your fees, service levels, funding amount and concentration limits to see if there is a better deal, or a more suited facility on offer in the market.