Invoice finance ultimate guide: Is Invoice Factoring right for you?

Invoice factoring is a method for businesses to support their cash flow by selling their invoices at a discount to a third party (a factoring company). Invoice factoring can be done by either independent financial companies or by banks. It is also known as Debt factoring; Invoice finance; Asset-based lending.

Factoring is a rising source of different company finance. This sort of alternative finance has increased in popularity since it has become increasingly difficult for businesses with poor credit to obtain traditional loans from high-street banks.

Invoice factoring should be used when your business frequently has large numbers of unpaid invoices and your cash flow suffers as a result.

Is invoice factoring right for you?

What kind of businesses can use it?

Invoice factoring services are best suited to enterprises that sell to other businesses on credit terms and have a yearly turnover of more than £50,000.

Invoice financing is a type of invoice finance for a range of sectors. It provides the flexibility required to respond to market changes quickly and can serve as the foundation of a growth strategy.


The money from invoices allows you to confidently bid on future work. You won’t have to chase down payments because the factor will handle it for you, allowing you to focus on building your business. You can order goods and recruit more personnel knowing that money is available.

Logistics industry

When you need to hire drivers, whether, for recurring contracts or a one-time delivery, there isn’t always enough quick cash available without endangering your monthly financial objectives. Factoring and discounting provide dependable cash injections, which are frequently made within 24 hours after sending out an invoice. In addition, it allows for faster response times and more agility.


The manufacturing business has certain cost requirements that can be met by invoice factoring. Borrowing is only restricted to the amount of work that you can invoice. Once you’ve entered the cycle of invoice funding, you’ll be able to efficiently grow your business without the risk of overtrading.

Wholesale and distribution

For wholesale and distribution companies, invoice factoring means ‘selling’ the outstanding debt in your sales ledger. Long credit terms are common in the wholesale market, and if your business is struggling with cash flow, a tailored factoring solution can help. When you have to wait up to 120 days for payment, factoring can give your business new life

Who is it for?

Not only can factoring help business owners meet financial commitments and grow, but it is also far easier to qualify for than a loan or business line of credit. There are minimal requirements because, unlike traditional bank alternatives, factoring companies look at the creditworthiness of the business paying the invoice—your client, not you.

To be eligible for factoring, your business must have:  

  • Invoices to factor
  • Clients with good credit
  • A completed factoring application
  • A business bank account
  • A tax identification number
  • A form of personal identification

Hidden Costs?

Invoice factoring and its value to your business must be weighed against invoice factoring costs. In the end, you will not receive as much money on an invoice that is factored as you would on one that is paid directly by the client. However, the advantages of invoice factoring typically exceed the costs.

You must be aware of any hidden charges so you get a real picture of invoice factoring rates. There are several different types of factoring costs to be aware of and avoid. Knowing these factoring fees means you’ll be able to ask about them upfront.

Here are some hidden charges to ask about:

You can find out how much cash you could release from your unpaid invoices using an invoice finance calculator.

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