Calculate invoice factoring costs and net advance for UK businesses, comparing factoring fees against the benefit of immediate cash flow.
Invoice Factoring Analysis
Frequently Asked Questions
Invoice factoring is when a business sells its outstanding invoices to a factoring company for immediate cash. The factor advances 70-90% immediately and pays the balance (minus fees) when the customer pays.
UK factoring fees typically range from 0.5% to 5% of invoice value, depending on your turnover, industry, and customer risk. Additional service fees and administration charges may apply.
With factoring, the factor manages your sales ledger and collects payments directly. Invoice discounting is confidential — your customers don't know, and you collect payments yourself. Discounting is cheaper but requires more admin.
Most UK factors advance 70-90% of invoice value immediately. The remaining 10-30% is held in reserve and released when your customer pays, minus fees.
Invoice factoring can help small businesses with cash flow problems. However, the effective APR can be high (15-40%+ annually). It's best suited to businesses with reliable B2B customers and slow-paying accounts.
Factors assess customer creditworthiness. They may decline invoices from financially unstable customers or set lower advance rates. Established B2B customers are preferred.
Recourse factoring means you are liable if your customer doesn't pay — you must return the advance. Non-recourse factoring protects against bad debts but costs more (higher fees).
Initial advances are typically paid within 24-48 hours of submitting valid invoices. This is the main advantage over traditional credit facilities.
Common sectors include: manufacturing, staffing/recruitment, transport and logistics, construction (with caution), wholesale, and IT services.
Yes. Some factors work with startups with no trading history, focusing on customer quality rather than the business's own track record. This makes factoring accessible when bank loans aren't.
Factoring fees and service charges are allowable business expenses for corporation tax and income tax purposes.
Typically required: aged debtors list, recent management accounts, sample invoices, ID/KYC documents, and details of existing borrowing. Approval can be very fast (2-5 days) compared to traditional finance.