Invoice Factoring

Last updated: 11/12/2024

What is invoice factoring?

Invoice factoring (also known as debt factoring) is where the funder takes control of your sales ledger and lends against your customer invoices.

This means that your business will receive most of the invoice value (usually up to 90%, minus a lender fee) immediately, instead of the typical 30-90 days.

Invoice factoring is an alternative to an unsecured loan, overdraft or credit card, and the amount of finance is usually stated as a percentage of your outstanding debtor book or sales ledger.

Payments will usually go from you customers to the funder so they will be aware that you are using the product.

How does invoice factoring work?

Invoice factoring works by you providing the goods/services to your customer and invoice them as normal. After this, you will send the invoice details to the invoice finance provider, but then effectively ‘sell’ those invoices to a factoring company. After verifying the invoices, the factoring company will pay you most of the invoice amount (usually around 90%).

Your customers will then pay the factoring company directly and the factoring company will chase the customer, if necessary. Finally, you will then receive the remaining invoice amount, minus the factoring fee, once the factoring company has been paid in full.

Invoice factoring vs Invoice discounting

Invoice factoring is like invoice discounting, however there is one fundamental difference. With factoring, your customers might know that you’re in receipt of finance because the lender will typically manage your sales ledger and credit control processes. As such, the bank will chase any late payments on your behalf. On the other hand, invoice discounting allows you to retain autonomy over all communications and customer service.

Advantages of using invoice factoring

Some of the advantages of using an invoice factoring facility are:

• A quick, safe source of cash flow by financing accounts receivable and releasing working capital tied up in unpaid invoices.
• It can lower time spent on administration and chasing late payments since the factor assumes responsibility for collecting the debt and taking over the management of your credit control.
• Factoring amounts can easily expand and contract with your sales ledger.

Does invoice factoring suit my business?

Invoice factoring works well for business owners who require fast funding and can afford the fees that come with selling invoices to a third party.

It can also provide better cashflow control where there may be different credit terms across your clients and customers.

Invoice factoring is a versatile product for start-up businesses or smaller businesses where there is little time to stay on top of administration.

How to apply for invoice factoring

MAF Finance Group works with a large panel of banks and alternative finance providers to find the most suitable financial solution for you.

If you would like to get a quote or need further information, simply fill in the form and we will contact you. If you want to speak to someone directly, you can call us on 0115 958 6872 and a member of our team will be happy to speak to you. Alternatively, email us at [email protected].