Invoice factoring is assessed differently from a loan. A lender asks whether you can repay; a factoring provider asks whether your customers will pay, and whether the invoices you issue them are clean enough to collect. That shifts the emphasis away from your balance sheet and towards your sales ledger. The criteria below are typical of the UK market, but every provider sets its own, so treat them as a guide rather than a rulebook.
Typical eligibility criteria
| Criterion | What providers typically look for | Why it matters |
|---|---|---|
| Business-to-business invoices | You sell to other businesses or public bodies on credit terms, usually 30 to 90 days. | Consumer debts cannot be assigned and collected in the same way, and consumer credit rules may apply. |
| Creditworthy customers | Customers that pass the provider's credit checks and can be given a credit limit. | The provider's main risk is the customer not paying, so debtor quality drives advance rates and limits. |
| Turnover | Often from around £100,000 to £250,000 a year; some from £50,000; whole-ledger discounting often £500,000 or more. | Minimum fees make small facilities uneconomic for both sides; selective and spot products serve smaller needs. |
| Trading history | Helpful but not essential. Some providers fund from the first invoice; others want 6 to 12 months. | History shows how customers actually pay. New businesses are assessed on customers and directors instead; see start-ups and factoring. |
| Sector | Recruitment, haulage, manufacturing, wholesale, printing, security and business services are widely funded. Construction and some contractual sectors are restricted. | Sectors with stage payments, retentions or heavy disputes produce invoices that are hard to verify and collect. |
| Business structure | Limited companies and LLPs are preferred. Sole traders and small partnerships are funded by some providers. | Unincorporated businesses can fall within the Consumer Credit Act 1974 for facilities of £25,000 or less, which many providers avoid. |
| No serious disputes | Invoices for completed work, accepted by the customer, with no counterclaims or set-off. | A disputed invoice cannot be collected and will be disapproved, so funding against it is withdrawn. |
| Clean ledger | Accurate sales ledger, aged debtor report that reconciles, few old or unallocated items, credit notes under control. | The ledger is the security. If it cannot be reconciled, the provider cannot verify what it is funding. |
| Director history | No undischarged bankruptcies or disqualifications; previous insolvencies explained. | Factoring relies on honest invoicing, so providers assess the people as closely as the business. |
| No existing charge over book debts | Either no debenture covering book debts, or the existing lender's written consent via a deed of priority or release. | The provider needs a first fixed charge over the debts it is funding. |
What makes approval harder
None of the following rules a business out, but each narrows the field of providers and tends to reduce the advance rate or increase the cost.
- Construction. Applications for payment, retentions, pay-less notices and contra charges mean an invoice is rarely a clean debt. Many providers decline the sector; specialists fund it at lower advance rates, often 50% to 70%. See construction factoring.
- Stage and milestone payments. If the customer can withhold payment pending completion of later stages, the invoice is conditional and hard to fund. Common in engineering and IT projects.
- Consumer sales. Invoices to private individuals are generally not fundable.
- Contractual sales. Long-term service contracts with performance conditions, service credits or termination rights give the customer grounds to reduce what it pays.
- Concentration. One customer accounting for more than 25% to 30% of the ledger exceeds many providers' limits, so part of the ledger may be unfundable.
- Pre-invoicing. Invoices raised before goods are delivered or work is finished are not debts yet. Providers test for this at survey and treat it as a serious issue.
- Sale or return, consignment and retention of title disputes. Anything that lets the customer send goods back or offset claims weakens the debt.
- Overseas customers. Fundable by some providers, often with credit insurance, but limits and rates are tighter.
Self-assessment checklist
Tick the statements that apply to your business. If you can tick most of the first group and few of the second, you are likely to find providers willing to consider a facility. The checklist is a guide only and does not store anything.
Positive indicators
Complicating factors
Ticked most of the first list?
Tell us about your business and customers and we will explain which types of facility you could request quotes for.
What providers check at the survey
After an initial conversation and an indicative offer, most providers carry out a survey (sometimes called an audit or pre-lend review) before releasing funds. It usually takes a day, at your premises or by video call, and covers:
Sales ledger and aged debtors
The full ledger, an aged debtor report and a reconciliation to the nominal ledger and bank. Old, unallocated or round-sum balances are queried.
Sample invoices and backing
A sample of invoices traced to purchase orders, delivery notes, signed timesheets or completion certificates, and to the customer's remittance when paid.
Customer verification
The provider may telephone a selection of customers to confirm that invoices are genuine and undisputed. This also establishes the debtors' payment habits.
Contracts and terms
Your terms of business and any customer contracts, looking for assignment bans, set-off rights, retentions and performance conditions.
Financials and directors
Management accounts, filed accounts, bank statements, VAT and PAYE position, Companies House records, and credit and identity checks on directors.
Security position
Existing charges at Companies House and any personal guarantees. The provider confirms it can take a first fixed charge over the book debts.
Preparing these documents before the survey shortens set-up, which typically takes one to four weeks from enquiry to first funds. Our guide to how the process works covers each stage.
Frequently asked questions
What is the minimum turnover for invoice factoring?
Many providers start from around £100,000 to £250,000 of annual turnover, some from £50,000, and traditional whole-ledger invoice discounting often from £500,000 or more. The British Business Bank notes a traditional facility is generally unsuitable below roughly £300,000. Selective and spot products fill the gap for smaller or irregular needs.
Can I get invoice factoring with bad credit?
Often, yes. Providers assess the creditworthiness of your customers more than your own, because the customers are the ones paying the invoices. A county court judgment or previous insolvency involving a director will be examined and may affect terms or lead to a decline, but a weak company credit score on its own is not usually fatal.
Does my business need to be a limited company?
Not always, but many providers prefer limited companies and LLPs. Sole traders and partnerships of two or three partners are treated as individuals under the Consumer Credit Act 1974, and a facility structured as credit of £25,000 or less can be a regulated agreement. Providers therefore often restrict or structure facilities for unincorporated businesses.
Can I use invoice factoring if I already have a bank loan or overdraft?
Usually, but the provider will need a first fixed charge over your book debts. If your bank already holds a debenture covering book debts, it will have to release or subordinate that charge through a deed of priority. Most banks agree, but it takes time and the bank may review your overdraft as a result.
What happens at the survey?
A provider's auditor reviews your sales ledger, aged debtor report, sample invoices with proof of delivery or timesheets, customer contracts, bank statements and management accounts, usually at your premises or by video. They are checking that invoices are genuine, undisputed and collectable, and that the ledger reconciles. The survey normally takes a day.