What is Invoice Factoring and How Does it Work?

Is invoice factoring the right finance solution for your business?

Invoice factoring means selling your unpaid invoices, either partially or entirely, to a factoring company. After issuing your customer with their invoice, rather than waiting for payment you transfer the invoice to the factoring company, which advances funds based on the invoice's value, providing you faster access to cash.

Boost your cash flow with invoice factoring

We compare a range of invoice factoring options in UK for you, so you can rest assured you'll get the right product and the best deal for your business. Get a quote online or call us on 0808 250 0859 to speak to one of our invoice factoring experts.

Boost your cash flow

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What is a Factoring Company?

A factoring company purchases outstanding invoices and takes over the responsibility of collecting payments from customers.

As your factoring company, Novuna advances between 70% and 90% of the invoice value, providing immediate cash flow. This helps businesses access working capital quickly rather than waiting weeks or months for customer payments.

Beyond providing upfront cash, the factoring company also handles credit control and payment collections. This means that the factoring company directly communicates with customers, follows up on unpaid invoices, and manages the entire collection process. By outsourcing these tasks, businesses can focus on growth and operations rather than dedicating time and resources to chasing payments.

This makes factoring an excellent choice for companies looking to improve cash flow and streamline accounts receivable management. Additionally, by transferring credit control to the factoring company, businesses may also benefit from the factoring company’s expertise in managing credit risk and assessing customer creditworthiness.

Invoice Factoring vs Invoice Discounting

Feature	Invoice Factoring	Invoice Discounting
Control	Managed by Factor	Managed by Business
Confidentiality	Low	High
Cost	Higher due to credit control services	Lower
Risk Management	Factor assesses customer risk	Business retains risk

Types of Invoice Factoring

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Spot Factoring

Spot factoring is a way for a business to access funds by selling unpaid invoices to a 3^rd party, a spot factoring company, on a one off basis in order to receive payment quicker.

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Reverse Factoring

Reverse-factoring is a financing option where a 3rd party financial provider finances the supplier on behalf of the buyer. The process involves the supplier, the buyer and the finance provider .The supplier sells the buyer’s unpaid invoice to the finance provider and receives the cash quickly, the buyer also gets longer to pay for its goods.

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Account Receivable Factoring

Account receivable factoring provides businesses with an option to finance their venture without taking out a loan. This is a type of debtor finance where SMEs sell its invoices to a third party at a discount, in order to provide an immediate cash injection. There are many reasons why a business may factor an invoice, including increasing cash flow and mitigating credit risk.

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Recourse and Non-Recourse Factoring

Recourse factoring is a form of finance where a company sells its invoices to a factoring company. The factor pays the company a percentage of their cash value and then chases up payment of the invoices on behalf of the company. Non-Recourse factoring is a form of finance where a company sells its invoices to a factor and receives a percentage of the cash value from them.

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How Can Invoice Factoring Help You?

Expand your operations

Invest in stock, machinery or equipment

Employ new members of staff

Fix long-standing issues with cash flow

Invoice Factoring FAQs

Is Invoice Factoring a Good Idea?

Invoice factoring can be a good idea for businesses needing immediate cash flow without taking on additional debt.

Is Invoice Factoring Regulated in the UK?

Yes, invoice factoring is regulated in the UK to ensure fair practices and protect businesses.

How Much Does Invoice Factoring Cost?

A typical factoring fee ranges from 1% to 5% of the invoice value, depending on various factors such as the creditworthiness of your customers and the volume of invoices.

How Do You Qualify for Invoice Factoring?

To qualify for invoice factoring, your business needs creditworthy customers, a consistent record of invoice payments, and invoices that are free from liens or other claims.

How Long Does It Take to Factor an Invoice?

Factoring an invoice usually takes between 24 to 48 hours after the initial setup and approval process.

What Are the Disadvantages of Invoice Factoring?

Disadvantages include factoring fees, potential impacts on customer relationships, the need to disclose financial information, and dependence on the creditworthiness of your customers.

Why Choose Novuna As Your UK Factoring Company?

6 month trial period

A 6 month trial period so you can be sure the product is right for you, followed by a 6 month rolling contract – we don’t tie our clients in for long periods.

Digital onboarding

We are the first in the market to offer a digital onboarding process and have been leading the way with our digital capabilities allowing clients to sign up within 24 hours from the first appointment.

Client Trust Account

Once you become a client you will be given your own trust account, meaning you will get same day availability on your funds. You can also view all of your invoices and payments online at a time suitable to you, 24/7.

No uncleared effects

We have heavily invested in our digital capabilities. This includes the auto allocation of payments using Artificial Intelligence. Ultimately this advance in technology means that our clients access money quicker as well as saving money on interest charges due to auto allocation.

Simple pricing

We aim to make the process of Cash Flow finance as simple and straightforward as possible. Our pricing is very straightforward to understand. For a no obligation quote or an informal chat you can call our friendly team today on 0808 250 0859.

Award winning support

We offer award-winning client services and individual Relationship Managers who are on the other end of the phone or out in the field to visit you in person.