At the end of 2024, UK Finance members had more than £21bn advanced to around 34,000 businesses through invoice finance and asset based lending. Almost none of that lending is subject to Financial Conduct Authority conduct rules. That surprises many directors, and it changes how you should approach a provider: the contract and the industry's voluntary code do the job a regulator would otherwise do.
Important: this guide is general information about the regulatory position as published by UK Finance and the FCA. It is not legal advice. The treatment of any particular facility depends on its structure and your business, so take professional advice before relying on it.
The FCA position for limited companies and LLPs
Invoice finance and factoring provided to limited companies and limited liability partnerships are not regulated activities under the Financial Services and Markets Act. The UK Finance Invoice Finance and Asset Based Lending Standards Framework (January 2025) states plainly that these products are currently not subject to statutory conduct regulation.
Legally, factoring is the purchase of debts and invoice discounting is lending secured on debts, and neither is a regulated activity when the client is a company. The FCA therefore does not authorise providers for it, does not set rules on how facilities are priced or terminated, and does not supervise the relationship.
Some providers are FCA-authorised. Banks and their invoice finance arms hold authorisation for deposit-taking and other activities, and some independents hold permissions for consumer credit or insurance distribution (bad debt protection is sometimes structured as insurance). That authorisation is real, but it attaches to those other activities, not to the invoice finance facility offered to your company. A provider that advertises "FCA authorised" is not telling you your facility is FCA regulated.
Sole traders, small partnerships and the Consumer Credit Act
The position differs for unincorporated businesses. Sole traders and partnerships of two or three partners are "individuals" for the purposes of the Consumer Credit Act 1974. A facility to such a business that is structured as credit (for example an invoice discounting line, rather than an outright purchase of debts) of £25,000 or less can be a regulated credit agreement, and the provider would then need FCA authorisation for consumer credit lending.
Agreements above £25,000 entered into wholly or predominantly for business purposes are exempt, provided the agreement contains the required business-purpose declaration. Partnerships of four or more partners and all companies fall outside the Act entirely.
The practical consequence is that many providers only fund limited companies and LLPs, or structure sole-trader facilities to stay outside the regulated perimeter. If you are a sole trader, expect fewer options and ask the provider how its facility is treated.
Brokers and credit broking
The same logic applies to intermediaries. Introducing a limited company to an invoice finance provider is not a regulated activity. Introducing a sole trader or small partnership to a lender for credit of £25,000 or less can be credit broking, which is regulated and requires FCA authorisation. Intermediaries therefore either hold authorisation, work only with companies, or use an arrangement with an authorised firm.
Debt Factoring is an independent information and enquiry service, not a lender or a provider. Our own position, including how enquiries are handled, is set out on our regulatory information page.
The UK Finance Standards Framework
In the absence of statutory regulation, the industry regulates itself through UK Finance, the trade body for most UK providers. Its Standards Framework has three parts.
The Code
Members commit to act with integrity, explain their products and charges clearly, deal fairly with clients in difficulty and give reasonable notice of changes. The Code is contractual between the member and UK Finance, not between the member and you, but members publish their adherence and it can be cited in a complaint.
Independent complaints process
If a complaint is not resolved with the provider, a client can refer it to an independent process adjudicated by CEDR (the Centre for Effective Dispute Resolution). The adjudicator can award up to £50,000. The process is free to the client and does not prevent you going to court afterwards.
Professional Standards Council
An independent council oversees the Code and the complaints process, reviews members' conduct and can require changes. It publishes an annual report.
The Framework also includes the Inter-Member Transfer Process, which sets out how a client moves from one member to another, with the new provider repaying the outgoing one. Our switching guide explains how that works in practice.
UK Finance: the trade association for the UK banking and finance industry. Its invoice finance and asset based lending members account for the large majority of the UK market, but membership is voluntary and some providers are not members.
The Financial Ombudsman and the courts
The Financial Ombudsman Service considers complaints about regulated activities and certain other matters involving authorised firms. Because invoice finance to companies is unregulated, the Ombudsman does not normally consider complaints about these facilities, even where the provider is an authorised firm for other purposes. Small businesses sometimes assume the Ombudsman's "micro-enterprise" and "small business" eligibility rules give them a route in; for an invoice finance facility, they generally do not.
That leaves two routes: the UK Finance complaints process where the provider is a member, and the courts. Court action is available for breach of contract, misrepresentation and similar claims, but it is slower, costlier and public.
What protections a client actually has
| Source | What it gives you | Limits |
|---|---|---|
| The facility agreement | Every right you have on fees, advance rates, notice, termination and disputes is written here. It is negotiable before signing. | Once signed, the terms bind you. There is no regulator to reopen an unfair-looking fee. |
| UK Finance Code and CEDR process | Standards of conduct, a free independent complaints route and awards up to £50,000. | Only applies to members. Awards are capped. The Code is not a statute. |
| General law | Contract law, misrepresentation, the Unfair Contract Terms Act 1977 for some standard terms, and the duty to act in good faith where implied. | Enforced through the courts, at your cost and risk. |
| Financial promotion rules | Advertising must be clear, fair and not misleading under the CAP Code and the Business Protection from Misleading Marketing Regulations 2008. | Covers marketing, not the terms of the facility itself. |
In short, the protections exist, but they are contractual and voluntary rather than statutory. Read the agreement, especially the schedule of charges, the minimum term, the notice period and the termination provisions, and take advice on anything you do not understand. Our guide on choosing a factoring company lists the contract terms that cause the most disputes.
Questions to ask a provider
- Are you a member of UK Finance and do you follow the Invoice Finance and Asset Based Lending Standards Framework?
- If you are FCA-authorised, for which activities, and does that cover this facility?
- How is this facility treated for a business of my legal structure?
- What is your internal complaints procedure, and can I refer an unresolved complaint to CEDR?
- Will you provide the full schedule of fees, including minimum, termination, audit and refactoring fees, before I sign?
- What is the minimum term and the notice period, and do you follow the Inter-Member Transfer Process if I move?
If a problem arises with any enquiry made through this site, our complaints page explains how to raise it.
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Frequently asked questions
Is invoice factoring regulated by the FCA?
Invoice finance and factoring provided to limited companies and limited liability partnerships are not regulated activities under the Financial Conduct Authority. A provider may be FCA-authorised for other activities it carries on, such as consumer credit or insurance distribution, but that authorisation does not extend to the invoice finance facility itself.
Are invoice finance brokers regulated?
Introducing limited companies to invoice finance providers is not a regulated activity. Introducing sole traders or partnerships of two or three partners to credit of £25,000 or less can amount to credit broking, which requires FCA authorisation. Many intermediaries hold authorisation for that reason or only work with limited companies. Ask any broker to state its regulatory position in writing.
Can I complain to the Financial Ombudsman about an invoice finance provider?
Not normally. Because invoice finance to companies is unregulated, the Financial Ombudsman Service does not usually consider these complaints. Most UK providers are members of UK Finance, whose Standards Framework includes an independent complaints process adjudicated by CEDR with awards of up to £50,000. Beyond that, the courts remain available.
Does unregulated mean invoice finance is unsafe?
No. It means the FCA's conduct rules do not apply to the facility, so your protections come from the contract, the UK Finance Code where the provider is a member, general law and the courts. The practical consequence is that you need to read and negotiate the agreement carefully rather than relying on a regulator to set its terms.