Invoice Factoring: A Complete Guide to Fast, Flexible Business Funding

Waiting 30, 60, or even 90 days for customer payments can place serious pressure on your business. Whether you’re a recruitment agency, transport firm, wholesaler, or manufacturer, late payments and long invoice terms can hold you back from hiring staff, paying suppliers, or taking on new contracts.

That’s where invoice factoring comes in.

At The Best Finance Group, we specialise in helping UK SMEs unlock the value tied up in unpaid invoices – giving them access to fast, flexible working capital. If you’re searching for ways to improve cash flow without taking on traditional debt, invoice factoring could be the ideal solution.

In this comprehensive guide, we’ll explain how invoice factoring works, who it’s for, and how your business can benefit.

What Is Invoice Factoring?

Invoice factoring is a type of business finance that allows you to sell your outstanding invoices to a third party (called a factoring company) in exchange for immediate cash. Instead of waiting for your customer to pay, you receive up to 90% of the invoice value within 24 -48 hours.

When your customer pays the invoice, the factoring company sends you the remaining balance – minus a small fee.

Example:

• You invoice a client for £10,000
• The factoring company advances £8,500 (85%) within 1 – 2 days
• The client pays in 60 days
• You receive the remaining £1,500 (less a service fee)

How Does Invoice Factoring Work?

Here’s a step-by-step overview of how invoice factoring works in practice:

1. You provide goods or services and issue an invoice to your customer.
2. You send a copy of the invoice to your factoring provider.
3. The factoring company advances up to 90% of the invoice value (usually within 24 – 48 hours).
4. The factoring company takes over the collection process, managing credit control and chasing payment.
5. Once your client pays, you receive the remaining balance minus the agreed fee.

This process can repeat for each invoice, allowing you to maintain consistent cash flow while outsourcing your collections.

Who Uses Invoice Factoring?

Invoice factoring is used by businesses of all sizes across many sectors. It’s especially helpful for companies that:

• Invoice other businesses (B2B)
• Offer credit terms (30–90 days)
• Have customers with reliable credit history
• Face seasonal or inconsistent cash flow
• Want to grow without taking on debt

Common industries using factoring include:

• Recruitment and staffing agencies
• Haulage and logistics firms
• Manufacturing and engineering companies
• Wholesale and distribution businesses
• Construction subcontractors
• IT and professional services providers

If you’re issuing invoices and waiting weeks or months to get paid, factoring could help you access cash sooner.

Benefits of Invoice Factoring

There’s a reason invoice factoring has become one of the UK’s most popular alternative finance options. Here’s what it offers:

Faster Cash Flow

No more waiting 60+ days for clients to pay. Get cash in days, not weeks.

Flexible Funding

The facility grows with your business – more invoices = more funding.

No Traditional Debt

Because you’re unlocking your own money, factoring doesn’t add to your balance sheet like a loan does.

Credit Control Support

Most factoring providers will manage customer collections and credit checks on your behalf.

Improved Supplier Terms

With quicker cash in hand, you can pay suppliers earlier – and often negotiate discounts.

Business Growth

Use the cash to invest in recruitment, marketing, stock, or contracts.

Types of Invoice Factoring

There are a few variations of invoice factoring, each offering different levels of service and visibility:

1. Disclosed Factoring

The client is aware that their invoice has been sold to a third-party factoring company. Payments are made directly to the factor.

2. Confidential Factoring

The factoring arrangement is kept private. The client pays into a trust account in your company’s name, and the factor handles the back end.

3. Recourse Factoring

If your client fails to pay, you’re responsible for repaying the advance.

4. Non-Recourse Factoring

The factoring company assumes the risk of non-payment (subject to terms and credit approval).

5. Selective Factoring

You choose which invoices or customers you want to factor, giving you more flexibility.

At The Best Finance Group, we help match you with the right type of facility based on your business size, industry, and customer base.

How Much Does Invoice Factoring Cost?

Factoring fees vary based on the size of your facility, your client risk profile, and the level of service provided. Typical costs include:

• Discount Fee (similar to interest): Usually 1.5% – 4.5% per 30 days
• Service Fee: Charged monthly, based on invoice volume (usually 0.5% – 2.5%)

Is Invoice Factoring Right for Your Business?

You should consider invoice factoring if:

• You’re growing but cash flow is lagging behind sales
• Your customers take 30+ days to pay invoices
• You want to avoid traditional bank loans or overdrafts
• You need a funding solution that scales as you grow
• You prefer outsourcing your collections and credit control

Even if you’ve been rejected for other forms of finance, you may still qualify for factoring – especially if your customers are strong payers.

FAQs About Invoice Factoring

What’s the difference between factoring and invoice discounting?
Factoring includes credit control services and customer communication. Invoice discounting is more hands-off and confidential – better suited to larger businesses with internal credit teams.

Will my customers know I’m using a factoring company?
Only with disclosed factoring. If you prefer discretion, we can help set up a confidential facility.

Can I choose which invoices to factor?
Yes, with selective factoring. This gives you more control and flexibility.

Can new businesses qualify?
Yes. If you’ve issued invoices to creditworthy clients, you may still be eligible – even if your business is relatively new.

Get a Free Invoice Factoring Quote

At The Best Finance Group, we compare leading UK invoice finance providers to find the right match for your business.

Whether you’re a small startup or a £10m turnover company, we’ll help you:

• Get funding in 24 – 48 hours
• Improve cash flow and free up working capital
• Choose between recourse, non-recourse, or confidential options
• Access facilities from £50,000 to £5 million+

For an idea of indicative costs, try the Best Factoring Quote Builder here:

https://bestfactoring.co.uk/best-factoring-quote-builder/

For further information contact us on 02921 900000 or email info@thebestgroup.co.uk. Or you could watch some videos on our YouTube channel, like this one below!