What is invoice factoring?
How it works for UK businesses
Factoring combines an advance on qualifying customer debts with a collection service. This guide explains what changes in your accounts process and what to check before choosing a provider.
The arrangement at a glance
Receive part of a sale before the customer settles
A business supplies goods or services, raises an invoice and waits for payment. Under a factoring facility, an approved portion of that receivable can become available earlier. The provider also takes an active role in administering and collecting the funded accounts.
For example, an eligible £12,000 invoice at an assumed 80% advance releases £9,600 initially. The £2,400 balance remains before fees and adjustments. Customer payment then allows the account to be reconciled. These numbers illustrate the sequence, not offered terms.
An advance is not protection against every unpaid debt. Read the recourse provisions and any separately agreed cover before relying on it.
Three practical reasons to consider factoring
Add collection capacity
Routine reminders and follow-up move into the provider’s service. Your team still needs to answer disputes and explain the original sale.
Reduce the wait for usable cash
Approved receivables may support drawings before their due date, helping with the timing of operating commitments.
Make debtor issues more visible
Regular reconciliation can highlight overdue accounts and credits. Ask what reports you will receive and how quickly queries are raised.
Start with your customers and collection workload
Factoring may be worth exploring when trade debts create a cash gap and payment chasing takes resources away from running the business. It is less straightforward where invoices are disputed, conditional or already paid.
Consider three points:
• Do customers owe clear, supportable business debts?
• Would an advance arrive when your costs fall due?
• Are you comfortable with an external collection process?
The provider also assesses your business position, debtor quality and concentration. Ask which balances would be excluded and how guarantees, security or overdue debts affect the proposal.
See how the issues vary by industry
Timesheet approval, delivery evidence and production acceptance create different funding questions. Choose the relevant sector below.
If your accounts team already collects effectively, compare the responsibilities retained under invoice discounting.
What happens to a funded invoice
Establish the debt
Keep the invoice and evidence of supply together. The facility specifies which customers and transactions can be submitted.
Confirm usable funding
The provider applies eligibility rules, limits and the advance terms. The resulting availability may be lower than the invoice headline suggests.
Follow up payment
Collections follow the agreed procedure. Your business supplies information needed to resolve service or delivery queries.
Reconcile the account
Payment clears against the advance. Charges and adjustments are recorded before any outstanding balance is released.
Factoring questions worth asking
Use the written proposal to clarify the service, customer contact and responsibility for unpaid accounts.
Find out who handles your account, how reminders are sent and how disputes return to your team. Ask what reporting you receive and whether any collection work attracts additional charges.
Agree the wording and payment instructions in advance. Customers normally know a factor is involved; a planned handover helps avoid confusion about where to pay.
No. Protection is defined by the contract and can be limited by debtor approvals, events covered and exclusions. A dispute about the goods or service may sit outside the protection.
The advance applies to eligible debt, with limits and reserves also affecting availability. Ask for a worked calculation using your current ledger rather than relying on a headline percentage.
Explore whether factoring fits your ledger
Tell Positive Funding how many customers you invoice, how long they take to pay and where collections are becoming difficult. We can discuss the funding and support to explore.