Frequently Asked Questions

Debt factoring is a way of releasing cash from unpaid customer invoices. A business sells its invoices to a finance provider, which pays an initial advance, commonly 70 to 90 per cent of the value, then collects payment from the customer and pays over the remaining balance less its charges. Because funding is tied to invoices, the amount available rises and falls with sales. The full explanation, with a worked example, is on our debt factoring page.

Yes. The two terms describe the same arrangement. Debt factoring is the name used in accountancy and business studies courses; invoice factoring is what almost every UK provider calls it. Both sit under the umbrella of invoice finance, which also includes invoice discounting and selective products. If you have been taught the term debt factoring and are now searching for a provider, you are looking for invoice factoring. Our invoice factoring page explains the product as providers describe it.

Both advance money against unpaid invoices. With factoring, the provider takes over credit control and collects payment from your customers, who are usually told about the arrangement. With invoice discounting, you keep running your own credit control, customers pay into a trust account and the facility is normally confidential. Discounting tends to be cheaper but is generally offered to larger businesses with proven collections. See factoring vs invoice discounting for a side-by-side comparison.

Not in the conventional sense. A loan is a fixed sum repaid in instalments with interest. Invoice finance is the purchase of, or an advance against, specific invoices, repaid when your customers pay. There are no fixed monthly repayments and the facility grows with turnover rather than being capped at an agreed amount. It still carries charges and obligations, and in a recourse facility unpaid invoices come back to you. The comparison with loans and overdrafts sets out the trade-offs.

Two charges make up most of the cost. The service fee is a percentage of invoice value or turnover, with published market ranges of roughly 0.5 to 3 per cent; factoring sits towards the upper end because it includes collections. The discount charge is an interest-like charge on funds actually drawn, usually quoted as a margin over Bank of England base rate or SONIA, often 1.5 to 5 per cent above it. Arrangement, audit, minimum and termination fees may also apply. Our invoice factoring costs guide works through each one.

The discount charge is the cost of the money advanced, calculated daily on the amount you have drawn and charged only for the days it is outstanding. It is quoted as a margin over a reference rate, so a charge of 3 per cent over a base rate of 4 per cent means 7 per cent a year on drawn funds. If you draw £34,000 for 55 days at that rate, the charge is about £359. Leaving funds undrawn reduces it. The costs guide shows the calculation in full.

Fees are rarely hidden, but they are often not mentioned until the proposal arrives. Look for an arrangement or set-up fee, often 0.5 to 1 per cent of the facility limit; a minimum monthly or annual service fee that applies even if turnover falls; survey and audit fees; a refactoring fee on recourse invoices past the recourse period; same-day payment fees; and a termination fee. Ask for the full tariff in writing before you sign. Our guide to choosing a factoring company lists the questions to put to each provider.

Many providers look for annual turnover from around £100,000 to £250,000 for a factoring facility, and some will consider businesses from £50,000. Whole-ledger invoice discounting is usually aimed at businesses turning over £500,000 or more, because it relies on your own credit control and systems. The British Business Bank notes that a traditional facility is generally unsuitable below roughly £300,000. Below those levels, selective invoice finance and spot factoring fund individual invoices without a turnover minimum. Our eligibility page sets out what else is checked.

Often yes, because providers underwrite your customers more than your own trading history. A new business with a contract to supply creditworthy business customers on credit terms can be fundable from its first invoices, especially through selective or spot facilities. Expect closer scrutiny of invoicing procedures, a lower advance rate at first and, in most cases, a personal guarantee from directors. Our guide to invoice factoring for start-ups explains what providers want to see.

Some providers will fund sole traders and small partnerships, but many restrict their facilities to limited companies and LLPs. The reason is regulatory: sole traders and partnerships of two or three partners are individuals under the Consumer Credit Act 1974, so a facility structured as credit of £25,000 or less can be a regulated agreement and the introducer may need consumer credit permissions. Providers either structure around this or decline. The regulation guide explains the position in more detail.

With factoring, usually yes. Customers receive a notice of assignment and are asked to pay the provider directly, and invoices carry the provider's payment details. Most large customers are used to this and it rarely causes concern. If you would prefer customers not to know, confidential invoice discounting keeps the arrangement private: customers pay into a trust account in your name and you continue to chase payment yourself. Confidential facilities are generally offered to established businesses with reliable credit control.

In a factoring facility the provider's credit control team sends statements, makes reminder calls and manages collections, working to a process agreed with you. Good providers are professional and your customer relationships should not suffer, but you are handing over a point of contact, so ask how they handle disputes and escalation. In invoice discounting and in CHOCS facilities (client handles own collections) you keep chasing payment and the provider monitors the ledger. Our invoice factoring page describes the collections service.

Possibly, but concentration is one of the first things providers check. Most whole-ledger facilities set a concentration limit of around 25 to 30 per cent of the ledger with any single customer; invoices above that limit are not funded. If one customer dominates your sales, a provider may still fund you with a lower advance rate, a higher limit for a strong-credit customer, or through selective invoice finance where each invoice is underwritten on its own. The eligibility page covers concentration in more detail.

It depends on whether your facility is recourse or non-recourse. Under recourse factoring, if an invoice remains unpaid after the recourse period, commonly 90 to 120 days past due, the provider reassigns it to you and recovers the advance from your availability or charges a refactoring fee. Under non-recourse factoring or with bad debt protection, the provider absorbs the loss if an approved customer becomes insolvent, within the credit limit set for that customer. Disputes are rarely covered. See what happens if a customer does not pay.

Recourse factoring leaves the risk of non-payment with you: unpaid invoices come back after the recourse period. Non-recourse factoring transfers the risk of an approved customer's insolvency to the provider, for a higher service fee or an added premium, and only up to the credit limit the provider sets for each customer. Non-recourse does not cover disputes, late payment by a solvent customer or invoices above the limit. Our recourse vs non-recourse comparison helps you decide which risk you would rather pay to remove.

No. Bad debt protection, whether built into a non-recourse facility or added to a recourse one, typically covers the insolvency of an approved customer up to an agreed credit limit, and sometimes protracted default after a set period. It does not cover disputed invoices, customers the provider has not approved, amounts above the limit, or losses where you have breached the policy's conditions on notification or credit terms. Premiums are often 0.5 to 1 per cent of insured turnover. The bad debt protection page explains the exclusions.

A 12-month minimum term with three to six months' notice is the most common structure for whole-ledger factoring and discounting facilities. After the initial term the agreement usually continues until notice is given. Some providers now offer rolling contracts or 28-day notice products, usually at a higher price. Selective and spot facilities have no minimum term because you pay per invoice. Check the termination fee and notice clauses before signing. Our guide to choosing a factoring company covers the contract terms to look for.

Yes. You give notice under your existing agreement, and the new provider either buys out the funded ledger or you collect it out before the transfer. Most UK providers are UK Finance members and can use its inter-member transfer process, which sets out how the outgoing and incoming providers hand over the ledger and funds. Watch for termination fees, minimum-fee shortfalls and the timing gap between the two facilities. Our guide to switching invoice finance provider walks through the steps and the costs.

Most providers ask directors for a personal guarantee or, more often, a warranty that the invoices assigned are genuine, undisputed and not subject to other charges. A warranty is narrower than a full guarantee: it bites if you have misrepresented the ledger rather than simply because a customer failed to pay. Providers also usually take a debenture over the company. Ask exactly what is being requested, and take legal advice before signing. Our page on how it works describes the legal agreement stage.

Invoice finance and factoring provided to limited companies and LLPs are not regulated by the Financial Conduct Authority. Instead, most UK providers are members of UK Finance and follow its Invoice Finance and Asset Based Lending Standards Framework, which includes a Code of conduct, an independent complaints process and a Professional Standards Council. Facilities to sole traders and small partnerships can fall within consumer credit rules in some circumstances. Our guide to whether invoice finance is regulated explains what this means for you.

Raise it with the provider first under its own complaints procedure. If the provider is a UK Finance member and you remain dissatisfied, you can escalate to the independent complaints process under the Standards Framework, which is adjudicated by CEDR and can make awards of up to £50,000. The Financial Ombudsman Service does not normally consider invoice finance complaints from limited companies. Complaints about this website rather than a provider are handled as set out on our complaints page.

No. Debt Factoring is an independent information and enquiry service. We explain how invoice finance works, what it costs and who it suits, and we pass enquiries to a provider or an authorised intermediary who can discuss a facility with you. We do not lend, do not provide finance ourselves, do not give regulated advice and are not stated to be FCA-authorised. Nothing on this site is an offer of finance. The about page explains how the site operates.

Your details are passed to the party that handles enquiries for this site, who will contact you to discuss your business and explain whether a facility may be suitable. Any indicative terms or quotation come from them, not from us, and you are free to compare them with other providers. No documents are required at the enquiry stage and there is no obligation to proceed. How your data is handled is set out in our privacy policy.

No. Making an enquiry through this site is free and does not commit you to anything. Costs only arise if you choose to take a facility with a provider, and they are set out in that provider's proposal and agreement. Before you enquire, the calculator lets you model an advance and net proceeds using your own invoice values and illustrative charges, so you have a sense of the numbers before any conversation.