Invoice Factoring

  • Invoice factoring allows you to access capital based on the money that you are owed by your customers
  • Below you can compare invoice factoring providers from our panel of leading UK business finance specialists
  • If you need more information on invoice factoring to help you make a choice you can get answers in our handy FAQ guide
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If outstanding customer invoices are affecting your cash flow, invoice finance may be an option for your business.

Invoice finance releases a percentage of the value of outstanding invoices quickly – the lender advances an agreed amount, and fees and interest are deducted once the customer has paid in full. So while you won’t get the full amount of the invoice, you will get the cash you need for other parts of your business without waiting weeks or months for customer payment.

We’re working with Touch Financial, a finance broker, to make it easy to compare a range of invoice financing companies.

How invoice financing works

The order
Create an invoice for your customer, showing how much is owed to your business and when payment is due.
Cash advance
Send a copy of the invoice to a lender to release up to 100% of its value as a cash sum.
When it is due, the lender receives the payment from the customer. The lender then sends your business any remaining amount on the invoice that wasn't originally financed, after deducting the prearranged fees.

This comparison service is provided by Touch Financial. Touch Financial is a finance broker, not a lender. Not all products offered by Touch Financial are regulated by the Financial Conduct Authority. They compare invoice financing services from a range of different lenders, aiming to find the one that best suits the needs of their business customers. Touch Financial consultants look at the profile of each business, including cash flow, accountancy needs, and any other specific requirements, to match them with the most appropriate invoice finance provider and product. Touch Financial is authorised and regulated by the Financial Conduct Authority (FRN:727220).

What is invoice finance?

Invoice finance lets your business borrow money against pending customer invoices. The lender advances a percentage of the value of the invoices, sometimes within just 24 hours, and charges a service fee and interest.

There are few types of invoice financing. Each releases cash from invoices, but they operate slightly differently. The most common types are:

  • Invoice factoring: The factoring company takes control of the sales ledger operations of your business, as a package of services.
  • Invoice discounting: Similar to factoring, but the sales ledger and credit control stays with your business. Your customers won’t be aware of the agreement.
  • Selective invoice finance: Also called spot factoring, this option lets you choose which invoice or customer account you want to finance.

You can use a specialist invoice financing company, bank or other financial institution for invoice finance, or a broker. There are also marketplace fintechs where you sell your invoices to investors via an online platform.

» MORE: A guide to invoice financing

How invoice financing works

The process depends on the type of financing you’re using, but generally:

  • The business sends sales invoices to its customers and a copy to the finance provider.
  • The provider pays an agreed percentage of the invoice value, which could be as much as 90% or even the full amount, into the business bank account.
  • Depending on the agreement, the business or the provider sends reminders and correspondence about payment to the customer.
  • Once the customer pays the full invoice amount, the provider releases the remaining amount, with their fees and charges deducted.

The loan isn't repaid until the original invoice has been settled by the customer.

Here’s an example. If 85% of a £50,000 customer invoice is released, your business would receive £42,500 up front. When your customer pays what they owe in full, the remaining £7,500, minus total charges and fees of 3%, is paid into your business account. That means a total of £48,500 for your business, and £1,500 for the factoring company

Can any UK business get invoice finance?

Invoice finance is open to many sectors and industries, but there are some eligibility requirements.

The lender will usually ask that your business:

  • invoices business customers, not consumers
  • meets minimum turnover requirements
  • is a sole trader, limited company or limited liability partnership
  • sells on usual credit terms of 30 to 90 days
  • can show evidence of a trading history

But not all lenders ask that your business meets all these requirements, and rates and the application process vary. An invoice finance broker can help streamline the process by comparing a number of lenders that fit your criteria on your behalf.

Is invoice financing a good idea?

If late payment of invoices is affecting your cash flow, invoice financing could be an option. That’s because it can free up working capital sooner than waiting for customers to pay.

To decide if it would suit your business, make sure you’ve considered the pros and cons.

Advantages of invoice financing

  • Quick access to working capital. Instead of waiting for weeks or months for customer payment, an agreed percentage of the invoice could be in your business bank account as soon as 24 hours after issuing it, once the agreement is set up.
  • No fixed assets are needed. There is usually no need to offer assets as security for the loan. This might be helpful if your business has few fixed, physical assets.
  • As your business grows, so does the amount you can borrow. The availability of finance is based on the value and quantity of your invoices. So as your revenue increases, so does the amount of funding you can access.
  • It may be easier to get than other types of business loan. Your business credit history is considered, but the focus may be more on the creditworthiness of your customers and the value of the invoices, than issues such as a limited operating history.
  • It can save you time. Some invoice financing options include complete outsourcing of your sales ledger, so you can spend the time on other areas of the business. The provider may automatically update you about payments and fees against each invoice through online accounting software.

Disadvantages of invoice financing

  • You won’t receive the full value of the invoice. The lender will deduct fees and interest. And if you want to end the agreement early, you may be charged a termination fee, or be expected to give a notice period.
  • The provider will usually carry out credit checks when you apply. This could affect your credit report. And depending on your agreement, if your customer doesn’t pay their invoice, the lender may hold you personally liable – this is known as recourse factoring. With non-recourse financing, the lender accepts the liability of your customer not paying.
  • It may cost more than other types of business borrowing. Factoring fees may be higher than traditional business loans. You should compare a few providers to find the best value agreement for you.
  • Your customer may know you’re financing their invoices. If the provider manages customer payments, your customers may be aware of the arrangement. It’s possible to keep this in-house, if you would rather keep it confidential, with invoice discounting.
  • It’s usually just a short-term solution. Contracts are usually between 12 and 24 months, so it’s sensible to make preparations so cashflow isn’t an issue once the agreement ends.

» MORE: Different types of invoice finance

Can you get invoice finance with poor credit?

If you’re having trouble securing traditional finance for your business due to poor credit, it may be possible to access invoice financing. That’s because lenders tend to focus on the strength of your customers’ credit and payment history, along with the payment terms of the invoice.

Even so, they will usually run business credit checks and sometimes personal credit checks. Working to improve your business credit score is likely to give you access to more, and possibly cheaper, borrowing terms. The lender will still need to confirm that your business isn’t in financial difficulty, and may ask to see for proof, such as bank statements.

» MORE: A guide to unsecured business loans

How to apply for invoice financing

You can apply for invoice financing directly with a finance provider, or through a broker. Eligibility checks and applying can usually be done online, with some options to manage your account via an online platform.

The application process and documents required will depend on the lender, your business and the type of financing you’ve chosen. But you’ll usually be asked to provide financial information, including a list of your customers and value of outstanding invoices. You’ll also be asked what industry the business operates in, and your estimated annual turnover. The provider may also ask for financial statements for auditing and check your business credit report.

What is Touch and what services does it provide?

Founded in 2008 as part of the SFP Group, Touch is an award-winning financial broker that specialises in invoice finance. It also offers brokerage services for business loans and working capital finance.

It is authorised and regulated by the Financial Conduct Authority (FCA).

How much can I borrow

How much you are advanced on each invoice depends on the deal you agree with the lender at the outset. When deciding on their charges, a provider will look at factors including:

  • your type of business
  • the creditworthiness and reliability of your customers
  • the number of invoices you expect to process
  • the typical value of your invoices

If you’re looking to finance more than £1 million, other sources of funding, such as business loans, credit cards or overdrafts, may be more suitable for your business.

Fees and costs of invoice financing

Invoice financing isn’t a free service, and charges vary between providers. What you pay may depend on a number of factors, such as your sector, trading history, the value and volume of your invoices, and how long your customers take to pay.

You’ll pay a discount charge for releasing the cash, as a percentage of the invoice value. You’ll also pay a service charge, also called a credit management fee, for the arrangement. If you’re outsourcing management of customer accounts and credit control, the service charge will be higher than if you keep everything in-house.

There may also be additional costs, such as a termination fee if you want to end your agreement early, and other charges for putting the facility in place, checking the business finances, overdue fees if customers don’t pay up on time, and credit protection fees. So it’s crucial to read the terms of the agreement carefully, so you’re aware of the actual cost.

While fees are important, you’ll also want to be sure of the quality of service. So take the time to compare your options and check customer feedback. If the lender will be dealing directly with your customers about payment, this may be a key consideration.

How long does it take to get invoice financing?

The initial set-up of your invoice financing agreement could take anything from a few hours to a week, depending on the complexity of your business, the provider, and how you apply. Make sure you have all the documentation ready, to avoid delays on your part.

Once everything is in place, you may have funds released from your invoices within 24 to 48 hours.

Invoice financing and confidentiality

If your business uses invoice discounting, you’ll maintain control of your sales ledger and collect customer payments. This means the agreement will remain confidential and shouldn’t affect client relationships.

Invoice factoring is a whole package of services, which involves outsourcing these services to the factoring company. This means your customers will be aware of the arrangement, as the factoring company will be dealing with them directly about payments.

Even so, arrangements can be flexible. It’s possible to get confidential invoice factoring, where the provider manages the credit control, but uses your business branding. That way, the customer isn’t aware of the arrangement.

Alternatives to invoice finance

If you’re looking to boost everyday cash flow in your business, invoice financing isn’t the only option. It depends what you need the funding for, but other types of financing include:

It’s important to research your options carefully and consider affordability before deciding which type of funding is best for your business. Do a cost-benefit analysis before taking out any loan, and be clear about the total interest you would be paying.

You may also want to look at the latest small business grants available for growing businesses.

» MORE: Funding to expand your business

Invoice Financing FAQ

What is an invoice finance facility?

It’s a type of finance provided by a lender where your business is advanced money against outstanding customer invoices early. The two main types are invoice factoring and invoice discounting.

A percentage of the value of the invoice is paid by the finance company, and fees and interest are deducted from the remaining amount, once the customer has paid in full.

What is invoice finance factoring?

With invoice finance factoring, the factoring company takes control of the company’s sales ledger. This includes collecting money from customers and contacting them about payment, as a package of services.

Customers will be aware of the arrangement, and this more comprehensive service will likely cost you more than keeping it in-house. But it might appeal if your business doesn’t have a dedicated credit department. And the time saved on accounts receivable admin could be used on other parts of the business.

Can you have invoice finance for one customer?

With invoice finance factoring, the factoring company takes control of the company’s sales ledger. This includes collecting money from customers and contacting them about payment, as a package of services.

Customers will be aware of the arrangement, and this more comprehensive service will likely cost you more than keeping it in-house. But it might appeal if your business doesn’t have a dedicated credit department. And the time saved on accounts receivable admin could be used on other parts of the business.

What is recourse and non-recourse factoring?

This is about who the risk of non-payment of invoices sits with: you or the factoring company.

Invoice factoring with recourse means your business is liable for your customer’s debts. If the lender can’t collect payment, your business will be liable to refund the cash advance for that invoice and effectively buy it back. This may mean you get higher initial cash advances from the lender, as the risk is on you to feel confident your customers will pay up on time.

Non-recourse factoring means the factoring company takes on the risk and responsibility of customers’ debts if they fail to pay. It may also be referred to as bad debt protection, or invoice insurance. This option is likely to cost you more, and the lender will want to be sure your business can show an extensive history of prompt customer payment.

Bear in mind there may be exceptions to what is covered by the non-recourse agreement, so read the small print carefully. For example, it may only apply if the customer becomes insolvent, or you may not be covered if the customer has grounds to dispute the invoice.

How can invoice finance help cash flow?

Invoice finance can help ease cash-flow problems because you get the majority of what your customer owes up front, often within 24 to 48 hours. The remaining amount is paid once the customer settles in full, minus fees and charges.

Rather than cash being tied up with debtors, your business gets a cash injection for anything from hiring staff to launching marketing campaigns. It might also help you during slow business periods, if you’re a seasonal business waiting for payments after a busy spell.

While it’s a fast and flexible option, it’s not for every business. If you have regular cash-flow issues, it makes sense to address the root cause. Invoice financing is a relatively short-term solution to cash shortfalls.

Are invoice finance brokers regulated in the UK?

Invoice finance isn’t a regulated activity in the UK, but organisations offering this service may be regulated for other similar services. You can check if your invoice finance provider is listed with the FCA.

Banking trades body UK Finance has an industry-wide code of conduct designed to help give you confidence using this type of finance. The majority of invoice finance providers in the UK are members of UK Finance, and must follow their standards.

Where can I find reviews of Newable Finance?

You’ll find reviews of Newable Finance, and the providers it works with, online. Independent sites can help give you a picture of the service and level of support they offer.

About the author

Holly champions clear, jargon-free writing. She’s been creating finance content for leading organisations for over 10 years. Read more

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