Funding against invoices
A factor advances cash against approved B2B invoices and usually manages collections. Availability can grow with the ledger. Customer quality, disputes, concentration and evidence of delivery matter.
Comparison guideFCA-registered UK lender FRN 782472 (opens the FCA register in a new tab)
Invoice factoring vs a business loan.
Both can release cash, but they are built on different assets and repaid in different ways. The right comparison is not “which is cheaper?” in isolation - it is which structure matches the purpose, evidence and cash cycle.
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Cash received · this invoice
A £50,000 invoice on 30-day terms
- Invoice value
- £50,000
- Paid to you, day 1–2
- £45,000
- When your customer pays
- £4,000
On a £50,000 invoice on 30-day terms: £45,000 advanced at 90%, £4,000 when your customer pays, a fee of about £1,000.
Illustrative: a 90% advance and a discount charge of about 2% of the invoice. Rates and advances vary by business, sector and customers.
Check eligibility
A fixed borrowing facility
A loan provides a set amount repaid under an agreed schedule. The lender assesses affordability, trading performance, credit history, security and the purpose of the borrowing.
Cash-flow fit
Factoring can suit recurring B2B sales on credit terms. A loan may fit a defined investment with predictable repayment capacity.
Flexibility
Factoring availability can move with invoicing. A loan is usually fixed and may require a new application to increase it.
Cost comparison
Compare the full service, discount charge, arrangement fees, loan interest, security costs and the operational value of collections - not one headline rate.
Decision framework
Asset-led funding or fixed-term debt?
The page now separates the two products by funding base, repayment behaviour and operating burden rather than relying on generic pros-and-cons.
| Decision point | Invoice factoring | Business loan |
|---|---|---|
| Best aligned to | Cash already earned through completed B2B invoices. | A defined investment or general-purpose capital requirement. |
| Funding base | Eligible receivables, debtor quality, concentration and collectability. | Business affordability, credit profile, security and sometimes a personal guarantee. |
| Repayment behaviour | Customer payments reduce the funded balance; new eligible invoices may create fresh availability. | Capital and interest are repaid on an agreed schedule. |
| Operational burden | Requires ledger reporting, invoice verification and disciplined credit control. | Usually lighter day-to-day reporting once the loan is drawn. |
| Customer visibility | Factoring is normally disclosed because the provider handles collections. | Customers are normally unaffected by the borrowing arrangement. |
| Failure mode | Availability contracts if invoices become disputed, concentrated, overdue or ineligible. | Fixed repayments can strain cash flow if trading weakens. |
Worked comparison
A business has a £400,000 eligible debtor ledger. At an illustrative 80% advance, gross availability would be £320,000 before reserves, fees and any ineligible balances.
£400,000 eligible ledger × 80% = £320,000 gross availabilityA £320,000 business loan may provide the same headline capital, but it creates a fixed repayment obligation rather than availability that revolves with invoice collections.
Use the right test
- Choose factoring when the funding need is caused by customer payment timing and the ledger can support it.
- Choose a loan when the use of funds is not linked to invoices and predictable repayments fit the business comfortably.
- Do not compare only the headline rate. Compare total cost, reporting burden, security, flexibility and what happens if sales fall.
Educational comparison. The example is not a quote or recommendation. Actual availability, pricing, security and repayment terms depend on assessment and the final agreement.
Worked example
Factoring an invoice instead of borrowing.
A contractor needs about £35,000 now and has a £40,000 invoice due in 60 days.
The factoring cost ends when the customer pays; a loan of the same size keeps its repayments running whether customers pay or not.
| Invoice value, on 60-day terms | £40,000 |
|---|---|
| Advanced within 24–48 hours (90%) | £36,000 |
| Discount charge, about 2% per 30 days, for 60 days | £1,600 |
| Paid to you when your customer pays | £2,400 |
| Total cost of funding this invoice | £1,600 (4% of the invoice) |
Illustrative: up to 90% advanced and a discount charge of about 2% of the invoice per 30 days. Rates, advances and any service fee vary by business, sector and customers, and are confirmed in writing before you commit.
Decision framework
Factoring or a business loan: use the comparison to make a funding decision.
This comparison needs to separate funding from the collections service included with factoring.
Funding
Factoring releases cash against eligible receivables; a loan provides fixed borrowing.
Collections
Factoring commonly includes disclosed credit control and collections support.
Repayment
Factoring reduces as debtors pay; a loan uses scheduled repayments regardless of invoice collections.
Examples are educational only. Eligibility, pricing, security and final terms always depend on a formal assessment of your business, your documents and the facility proposed.
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