Invoice Factoring
Invoice factoring is a financial service that enables businesses to convert their outstanding invoices into immediate cash. This service enhances cash flow by providing quick access to up to 90% of the value tied up in unpaid invoices, allowing businesses to meet their financial obligations and invest in growth opportunities without waiting for customer payments.
Unlike invoice discounting, when factoring the lender will normally handle your credit control. This will save your business time as you will not have to chase your clients for payment, allowing you to focus on your business.
*All credit profiles considered
How Does Invoice Factoring Work?
- Create Invoice: You provide goods or services to your customer and issue an invoice.
- You submit the unpaid invoice to a factoring provider.
- Immediate Cash Advance: The factoring provider advances you a percentage of the invoice value, typically between 70-90%.
- The factoring provider takes over the collection process and directly contacts your customer for payment – in line with agreed terms.
- Your customer pays directly to the factoring provider
- Once the customer pays the invoice in full, the factoring provider releases the remaining balance to you, less any pre agreed fee.
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Benefits of Invoice Factoring
- Receive immediate funds to cover expenses, invest in growth, or manage unexpected costs.
- Save time and resources by letting the factoring provider handle the collection process.
- Suitable for newer businesses: lenders focus on the strength of your customers, so a long trading history is not always needed.
- Relies on creditworthiness of your customer.
- Option to insure against risk of non payment.
Is this right for your business?
With a wide and varied range of funding solutions and lenders, it can be difficult to understand which is the best option for your business. At Aim Financial Solutions, we will help you to understand which funding options are the best solution for your business and we will help you to secure the most competitive terms with the best lender for your circumstances.
Ready to unlock your working capital? Contact us today to learn more about how invoice finance services can benefit your business.
Who is invoice factoring for?
Factoring suits businesses that sell to other businesses on credit terms and would rather not spend time chasing payments. It is often a good fit for:
- Smaller and growing businesses without a dedicated credit controller
- Newer businesses that need funding before they have a long trading record
- Fast-growing firms whose cash flow cannot keep up with new orders
- Sectors with long payment terms, such as recruitment, construction, haulage, manufacturing and wholesale
If you already have strong credit control and want to keep your funding confidential, invoice discounting is usually the better and cheaper option. Our invoice discounting page has a side-by-side comparison of the two.
How the lender manages your credit control
With factoring, the lender runs your sales ledger for you. That usually includes:
- Sending statements and payment reminders to your customers
- Chasing overdue invoices by phone and email
- Allocating payments and keeping your ledger up to date
- Credit checking new customers, helping you set sensible credit limits
Reputable factors are professional and courteous with your customers. Factoring is widely used across UK industry, so most businesses are used to paying a factoring company. Your customers will be told about the arrangement when the facility starts, usually by a simple notice on your invoices.
What does invoice factoring cost?
Factoring usually has two main charges:
- Service fee: covers running your sales ledger and credit control. It is usually a percentage of your turnover or a fixed monthly fee.
- Discount fee: interest charged only on the money you draw, usually set as a margin over the Bank of England base rate.
Because the lender is doing your credit control, the service fee is normally higher than for invoice discounting. Some facilities also have set-up fees, minimum fees, a minimum term and a notice period. We set out every cost before you sign, so you can compare offers like for like.
Recourse or non-recourse?
This decides who carries the risk if a customer does not pay:
- Recourse factoring: if a customer fails to pay, you repay the advance. It is the most common and lowest-cost option.
- Non-recourse factoring: the lender includes bad debt protection, so you are covered if an approved customer becomes insolvent. It costs more, but gives you more certainty.
Non-recourse cover usually has conditions, such as credit limits on each customer. We will explain exactly what is and is not covered.
What you will need
- An aged debtors report showing who owes you money
- Your latest accounts, or management figures if you are a newer business
- Recent business bank statements
- Sample invoices, and contracts or terms with your main customers
Getting started
- Free review. Tell us about your business and your customers.
- Lender match. We approach the factors best suited to your sector and size.
- Compare offers. We set out each offer side by side, with all costs explained.
- Set-up. The lender checks your sales ledger and your customers are notified.
- Funding. You receive up to 90% of each new invoice, usually within 24 hours of raising it.
Invoice factoring FAQs
Will my customers think my business is in trouble?
Very unlikely. Factoring is a routine way for businesses to fund growth, and many well-known companies use it. Most customers simply pay a different bank account.
Can I factor invoices for just one customer?
Some lenders offer spot factoring or selective invoice finance, where you choose which invoices or customers to fund.
Can a start-up use factoring?
Often, yes. Because factoring relies mainly on the strength of your customers, some lenders will work with businesses that have only recently started trading.
Can I move to invoice discounting later?
Yes. As your business grows and your credit control becomes established, many businesses move from factoring to confidential invoice discounting. We can help you make the switch.
Can I leave a factoring agreement?
Facilities usually have a minimum term and a notice period. We will explain these before you sign, and can help you review or move an existing facility.
Can you help if my bank has said no?
Often, yes. Factoring depends mainly on who your customers are, so it can be available when other lending is not.
Stop waiting to be paid. Let’s get started
Tell us about your business and we will come back with your options within one working day.