There are dozens of invoice factoring companies operating in the UK, from the invoice finance arms of high street banks to online platforms funding single invoices for sole traders. They do not compete on the same things. A bank division may offer the keenest discount margin to a £5m manufacturer and decline a £300k recruitment start-up outright; a specialist will do the opposite. Choosing well means knowing what kind of provider you are looking at and what to ask it.
What is a factoring company?
Factoring company (factor): a finance provider that buys a business's unpaid invoices, pays an advance against them (typically 70–90% of value), collects payment from the business's customers and releases the balance less its charges. The same companies usually offer invoice discounting, where the business keeps credit control, and sit within the broader invoice finance market.
Factoring companies earn a service fee for running the ledger and a discount charge on the funds advanced, and take security over the business's book debts. Factoring provided to limited companies and LLPs is not regulated by the Financial Conduct Authority; the industry's own standard is the UK Finance Standards Framework, covered below. Sole traders and small partnerships should read is invoice finance regulated? to see why their choice of provider may be narrower.
Types of invoice factoring provider
| Provider type | Typical strengths | Typical limitations |
|---|---|---|
| Bank-owned divisions | Competitive pricing for larger, established businesses; integration with existing banking; strong balance sheets. | Higher turnover minimums; slower set-up; less appetite for young businesses, weaker sectors or messy ledgers. |
| Independent finance houses | Flexible on sector and structure; relationship-led; often faster decisions; many handle construction, recruitment and turnaround situations. | Pricing can be higher; quality of credit control varies; check funding lines and ownership. |
| Fintech and online platforms | Quick onboarding, selective and single-invoice products, no long contracts, accounting software integrations. | Higher cost per invoice; less personal credit control; may not suit whole-ledger needs or complex debtors. |
| Specialist sector funders | Deep knowledge of one sector (recruitment pay-and-bill, construction, haulage); products built around its payment mechanics. | Not an option outside their sector; sometimes bundled with back-office services you may not need. |
| Brokers and introducers | Know the market and which providers fit which cases; can run a comparison for you. | Usually paid by commission from the provider; panel size and independence vary. |
What to compare between factoring companies
Price matters, but a facility that is cheap and does not fund your largest customer is worse than one that is dearer and does. Compare on all of the following.
- Advance rate. Commonly 70–90% of invoice value. Ask whether it differs by customer, by sector, for export debtors or for older invoices.
- Service fee. Typically 0.75%–3% of turnover for factoring. Confirm whether it is charged on gross or net invoice value.
- Discount margin. Roughly 1.5%–5% over base rate or SONIA. Check for a floor on the reference rate.
- Minimum fees. The monthly or annual minimum and how it was calculated. For smaller businesses this is often the deciding number.
- Contract length and notice. Commonly 12 months with 3–6 months' notice; some rolling or 28-day products exist. Ask about termination fees.
- Concentration limits. Typically 25%–30% per customer. If your ledger is concentrated, ask what the provider will do about it rather than assuming.
- Disclosed or confidential. Factoring is usually disclosed. If you need confidentiality, you are probably looking at confidential invoice discounting and a different set of providers.
- Credit control quality. Who will chase your customers, how, and how often? Ask to speak to the team, not just the sales person. Poor collections damage customer relationships you spent years building.
- Online portal and integrations. Can you upload invoices, see availability and reconcile payments in real time? Does it connect to your accounting software?
- Sector experience. A provider who understands applications for payment, timesheets or pallet-network self-billing will fund more of your ledger with less friction.
- Bad debt protection. Is it available, at what premium, and on what terms (insolvency only, or protracted default too)?
- UK Finance membership. Members sign up to a Code, an independent complaints process adjudicated by CEDR (awards up to £50,000) and oversight by a Professional Standards Council. The Financial Ombudsman Service does not normally consider invoice finance complaints, so this is the main external route if something goes wrong.
Convert each quotation into a projected total annual cost using the method in our costs guide, then weigh that figure against the non-price factors above.
Red flags
- A headline rate with no written breakdown of minimum fees, arrangement fees, refactoring fees or termination fees
- Pressure to sign before you have seen the full agreement, or "this rate is only available today"
- Promises of approval or funding within a fixed number of hours before anyone has seen your ledger
- Vague answers about who will contact your customers and what they will say
- A contract term longer than 12 months, or a notice period longer than six months, without a clear reason
- Unwillingness to confirm UK Finance membership or to explain the complaints process
- An introducer who will not say how they are paid or how many providers they compare
- Fees calculated on invoice value for the discount charge rather than on funds actually drawn
Questions to ask a factoring company
Put these to every provider, in writing where possible, so the answers can be compared side by side.
- Which of my customers will you fund, at what advance rate and credit limit?
- What is the total projected cost in year one and year two on my actual turnover, including every fixed fee?
- What is the recourse period, and what happens to availability when an invoice is recoursed?
- How do you handle disputed invoices and credit notes?
- Who runs credit control, how do they contact customers, and can I set any limits on that?
- What is the minimum term, the notice period, and the cost of leaving early?
- Do you require a personal guarantee or a debenture, and what do they cover?
- What happens if my turnover falls below the projection the minimum fee was based on?
- Are you a member of UK Finance, and how do I complain if I need to?
How brokers and introducers are paid
Most invoice finance brokers charge the business nothing directly. They are paid by the provider: a commission on the service fee for the life of the facility, an upfront introduction fee, or both. There is nothing wrong with that model, but a broker with a small panel can only recommend from that panel, and commission that differs between providers creates an incentive that may not align with yours.
Under the UK Finance Code, member providers are expected to deal with clients openly and, where asked, to disclose any commission or fee paid to an introducer in connection with the facility. Ask the broker directly: how are you paid, by whom, how much, and does it affect my rate? Introducing sole traders and small partnerships to lenders can also be credit broking, a regulated activity, so brokers dealing with those businesses should be able to explain their FCA position.
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Checklist before you sign
Shortlist by fit
Rule out providers whose turnover minimum, sector appetite or product (factoring vs discounting vs selective) does not match your business.
Obtain two or three full quotations
Same information from each, in writing, including the fee schedule and draft agreement.
Calculate total annual cost
Use your real turnover and debtor days. Include minimum, arrangement and audit fees. Compare year one and year two.
Test the credit control
Ask how your top three customers would be handled. Request a sample statement and reminder letter.
Read the exit terms
Minimum term, notice period, termination fee and what happens to the ledger on exit. Our switching guide explains the UK Finance transfer process.
Confirm standards and complaints
UK Finance membership, the Code and the CEDR complaints route. Keep the confirmation in writing.
Ready to request quotations?
Tell us your turnover, sector and customer profile and we will explain which types of provider are worth approaching for your situation.
Frequently asked questions
What is a factoring company?
A factoring company, or factor, is a finance provider that buys a business's unpaid invoices, pays an advance against them, collects payment from the business's customers and then releases the balance less its charges. In the UK, factoring companies include bank-owned divisions, independent finance houses, online platforms and specialist sector funders.
Are invoice factoring companies regulated in the UK?
Invoice finance and factoring provided to limited companies and LLPs are not regulated by the Financial Conduct Authority. Most UK providers are members of UK Finance and follow its Invoice Finance and Asset Based Lending Standards Framework, which includes a Code, an independent complaints process adjudicated by CEDR with awards up to £50,000, and a Professional Standards Council. Different rules can apply to sole traders and small partnerships.
Should I use a broker to find a factoring company?
A good broker knows which providers suit which sectors and turnover bands and can save time, but brokers are usually paid commission by the provider, which can influence recommendations. Ask any broker how they are paid, how many providers they work with and whether the commission affects your rate. Under the UK Finance Code, members must disclose to clients any commission paid to an introducer when asked.
How many factoring quotes should I get?
Two or three detailed quotations are usually enough to see the range and to negotiate. Ask each provider for the same information: advance rate, service fee, minimum fee, discount margin, arrangement fee, recourse period, refactoring fee, contract term, notice period and termination fee, so the facilities can be compared on total annual cost.