The complete guide to invoice factoring (without the jargon)

If you run a business that invoices other businesses, you have almost certainly felt the gap between doing the work and getting paid for it. Wages, suppliers and VAT leave on schedule; customer payments arrive 30, 60, sometimes 90 days later. Invoice factoring is built to close that gap, and this guide explains exactly how.

What is invoice factoring?

Invoice factoring is a form of invoice finance where a funder advances most of the value of an invoice as soon as you raise it — typically up to 90% within 24 to 48 hours — and releases the balance, minus a fee, once your customer pays. With factoring specifically, the funder also runs credit control: they chase and collect payment on your behalf, which lifts the admin of getting paid off your desk.

How the money flows

1. You deliver the goods or service and raise an invoice as normal.
2. You upload the invoice to the funder — often automatic from your accounting software.
3. The advance (up to 90%) lands in your account, usually within a day or two.
4. Your customer pays on their normal terms; the funder collects.
5. The balance is released to you, less the agreed fee.

What does it cost?

There are two straightforward parts: a service fee for running the facility (a small percentage of turnover) and a discount charge on the funds you actually draw, a little like interest. Both are agreed in plain terms up front. Factoring is typically dearer than secured bank debt — but the honest comparison is like-for-like, including the value of having collections handled for you.

Is factoring right for your business?

It tends to suit UK SMEs that sell to other businesses on credit terms, invoice after delivery, and have a spread of creditworthy customers. It works best when the paperwork is clean — order, delivery, invoice — and it is especially powerful for businesses that are growing, seasonal, or simply cash-tight despite being profitable. It fixes when cash arrives, not whether — so it complements a healthy business rather than rescuing a failing one.