Debt Factoring & Invoice Finance for UK Businesses
Turn outstanding business invoices into accessible working capital. Explore flexible factoring and invoice finance solutions designed to help UK businesses manage cash flow and support growth.
- Plain-English explanations
- Costs and risks discussed openly
- No obligation enquiry
Advance rates, timing and charges vary by provider and facility. Nothing here is an offer of finance.
What debt factoring is, in plain English
Most UK businesses that sell to other businesses give their customers time to pay, often 30, 60 or even 90 days. The work is done and the invoice is issued, but the money is tied up until the customer settles. Debt factoring releases that money early.
Under a factoring arrangement, a business sells its unpaid invoices to a finance provider. The provider pays an agreed percentage of each invoice up front, takes over collecting payment from the customer, and pays the rest, less its charges, once the customer has paid. The invoices themselves are the basis of the funding, so the facility can grow as sales grow.
"Debt factoring" and "invoice factoring" mean the same thing. The first is common in accountancy and business studies, the second is what most providers call it. Both sit within the wider family of products known as invoice finance.
Read the full guide to debt factoringFour steps from unpaid invoice to usable cash
The exact process depends on the provider and the facility you agree, but most factoring arrangements follow the same shape.
Raise an invoice
You deliver goods or services to a business customer and issue an invoice on your normal credit terms.
Submit eligible invoices
You pass the invoice to the provider, usually through an online portal. The provider checks it is valid, undisputed and within agreed limits.
Receive an agreed advance
The provider pays an agreed percentage of the invoice value into your account. Timing and percentage are set out in your agreement.
Customer pays, balance settled
Your customer pays the provider. The provider releases the remaining balance to you, less the service fee and any discount charge.
Different structures for different businesses
Invoice finance is a family of products, not a single facility. The right one depends on how much control you want over credit control, whether customers should know, and how often you need funding.
Debt Factoring
Sell unpaid invoices to a provider for an upfront advance. The term used in accountancy for invoice factoring.
Explore debt factoringInvoice Factoring
Funding plus a credit control service. The provider chases and collects payment, which suits businesses without a dedicated finance team.
Explore invoice factoringInvoice Finance
The umbrella term for funding against unpaid invoices, covering factoring, discounting and selective facilities.
Explore invoice financeInvoice Discounting
Borrow against your sales ledger while keeping control of credit control. Usually confidential, so customers are not told.
Explore invoice discountingSelective Invoice Finance
Choose which invoices or customers to fund, when you need to, without committing your whole ledger.
Explore selective financeNon-Recourse Factoring
Factoring with protection against customer insolvency, so an approved bad debt does not come back to you.
Explore non-recourse factoringWhat factoring can do for working capital
Factoring is not free money and it is not right for every business. It is a tool for one specific problem: cash that is owed to you but not yet in the bank. Used for that problem, it can:
- Improve access to working capital
Release a proportion of invoice value soon after issue rather than waiting for payment terms to expire.
- Manage extended payment terms
Offer the 60 or 90-day terms larger customers expect without starving your own cash flow.
- Support payroll and operating costs
Meet weekly wages, supplier bills and fuel or materials costs that fall due long before customers pay.
- Finance growth
Because funding is linked to invoices, the facility can scale with sales rather than being capped at a fixed loan amount.
- Reduce time spent on credit control
Where the facility includes collections, the provider's team chases payment so you do not have to.
- Access funding linked to receivables
Eligibility rests mainly on the quality of your customers and invoices, which can help businesses that lack other security.
Sectors where invoice payment gaps bite hardest
Every industry has its own payment habits. These guides explain how factoring and invoice finance fit the way each sector invoices and gets paid.
Construction
Applications for payment, retentions and subcontract chains make construction one of the hardest sectors to fund. Here is what to expect.
Construction factoringRecruitment
Temporary workers are paid weekly while clients pay monthly or later. Factoring is a long-established fix for that gap.
Recruitment factoringManufacturing
Raw materials and labour are paid for months before a customer settles. Invoice finance can bridge long production cycles.
Manufacturing financeHaulage & Transport
Fuel, drivers and vehicle finance are weekly costs. Customers often pay in 60 days or more. Factoring is common across the sector.
Haulage factoringLogistics
Freight forwarders, couriers and 3PL operators carry costs for carriers and customs long before customers pay.
Logistics invoice financeWholesale & Distribution
Stock is bought and paid for up front, then sold on credit to retailers and trade customers. Invoice finance can fund that stock cycle.
Wholesale factoringThe two main structures, side by side
Both release cash from unpaid invoices. The difference is who collects the money and whether your customers know.
| Feature | Invoice factoring | Invoice discounting |
|---|---|---|
| Who manages credit control | The finance provider chases and collects payment on your behalf. | Your business keeps running its own sales ledger and collections. |
| Are customers notified? | Usually yes. Invoices carry a notice and customers pay the provider. | Usually no. Confidential facilities are the norm; customers pay a trust account in your name. |
| Typical suitability | Smaller or growing businesses, those without a credit control function, and sectors with many customers. | Established businesses with reliable credit control, good systems and generally higher turnover. |
| Costs and service structure | Service fee tends to be higher because it covers collections; plus a discount charge on funds advanced. | Service fee tends to be lower because you do the work; plus a discount charge on funds advanced. |
| Administrative responsibility | Provider handles statements, reminders and reconciliations. | You handle collections and report ledger movements to the provider regularly. |
Estimate an advance against an invoice
Enter an invoice value and adjust the illustrative advance rate and charges to see how an initial advance, retained balance and net proceeds might break down.
Straight answers before you speak to anyone
Invoice finance is widely used but poorly explained. This site exists to set out how it works, what it costs and when it is not the right answer, so that any enquiry you make is an informed one.
Learn before you enquire
How much does invoice factoring cost?
Service fees, discount charges, minimum fees and the extras, with a worked example.
Read guideDebt factoring advantages and disadvantages
An honest look at where factoring helps and where it can cause problems.
Read guideWho qualifies for invoice factoring?
Turnover, customer quality, sector and the things that make providers cautious.
Check eligibilityWhat happens if a customer doesn't pay?
Recourse periods, bad debt protection and the practical steps providers take.
Read guideInvoice finance vs business loans
Flexible funding against receivables or fixed borrowing: how to decide.
Compare optionsHow to choose an invoice factoring company
The questions to ask, the contract terms to check and the warning signs.
Read guideCommon questions about debt factoring
What is debt factoring?
Debt factoring is a form of invoice finance where a business sells its unpaid customer invoices to a finance provider. The provider pays an initial advance, typically a majority of the invoice value, then collects payment from the customer and releases the remaining balance less its charges. In the UK the term is used interchangeably with invoice factoring.
Is debt factoring the same as invoice factoring?
Yes. Debt factoring and invoice factoring describe the same arrangement. Debt factoring is the term more often used in accountancy and business studies; invoice factoring is the term most UK providers use.
How much does invoice factoring cost?
Costs usually consist of a service fee, charged as a percentage of invoice value or turnover, and a discount charge on the funds advanced, usually quoted as a margin over a reference rate. Published market ranges vary widely by provider, turnover, sector and risk, so any figure should be treated as indicative until you have a written quotation. Our costs guide goes through each charge.
Will my customers know I am using factoring?
Usually yes with factoring, because the provider manages collections and customers pay the provider directly. If you would prefer customers not to be told, confidential invoice discounting keeps the arrangement private, although it is generally offered to businesses with established credit control.
What happens if my customer does not pay?
It depends on whether the facility is recourse or non-recourse. With recourse factoring you must repay or replace the advance after an agreed period. With non-recourse factoring or bad debt protection the provider absorbs the loss if an approved customer becomes insolvent, subject to the terms of the cover.
Is invoice finance regulated by the FCA?
Invoice finance and factoring provided to limited companies and LLPs are not regulated activities under the Financial Conduct Authority. Most UK providers follow the UK Finance Invoice Finance and Asset Based Lending Standards Framework, which includes an independent complaints process. Different rules can apply to sole traders and small partnerships. See is invoice finance regulated?
Find Out Whether Invoice Factoring Could Work for Your Business
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