Invoice factoring explained for UK businesses

Invoice factoring is a straightforward cycle that replaces the usual wait for customer payment with faster access to working capital.

1. You invoice your customer: You deliver goods or services and raise an invoice as normal, uploading a copy to the factoring provider.
2. Funding advance: The factor typically deposits an agreed advance percentage (e.g., up to 85% of eligible invoices) into your bank account shortly after approval.
3. Credit control: The factor manages collections, sending statements and following up with the customer on your behalf.
4. Customer pays: Your customer pays the full invoice value directly into a trust account controlled by the factor.
5. Balance released: The factor deducts their service fee and discount charge, releasing the remaining balance (e.g., 15% less fees) back to you.

Recourse vs Non-Recourse

Recourse factoring: The most common form. If a customer fails to pay after a set period, the risk remains with you. You must refund the advance or replace the invoice.

Non-recourse factoring: The factor takes on the credit risk. If the customer formally becomes insolvent and fails to pay, the factor absorbs the loss. Note that non-recourse does not cover commercial disputes (e.g., if the customer refuses to pay because they claim the work was faulty).

Yes. Invoice factoring is a "disclosed" facility. Your invoices will carry a notice of assignment stating that the debt has been sold to the factoring company and providing their payment details. The factor will also manage the credit control, meaning they will contact your customers directly for payment.

For many businesses, this is a benefit—it professionalises the collections process and removes the awkwardness of chasing clients for money. However, if maintaining confidentiality is a strict requirement, you should consider Invoice Discounting instead (which is often considered for businesses with £500,000+ turnover).