If your money is stuck in unpaid invoices, invoice finance releases most of it within days of raising the invoice — so slow payers stop dictating your cash flow.
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With factoring, the funder advances against your invoices and takes over collections. Your customers know, because they pay the funder. That is a real consideration for some businesses and an outright relief for others: it removes credit control as a job, which for a small team is a genuine cost saving rather than an inconvenience.
With invoice discounting, you keep collections and the facility is normally confidential — customers deal with you as before. Funders generally want more from you in exchange: stronger systems, better reporting, usually a larger and more established business.
Selective or single-invoice finance funds one invoice or one customer at a time, with no whole-book commitment. It costs more per invoice and it suits an occasional need — one large order, one slow payer — rather than a permanent facility.
There are usually two charges: a service fee for running the facility, expressed as a percentage of turnover, and a discount charge on the funds advanced, which behaves like interest. Quoted separately they can look modest; combined and annualised against the money actually drawn, they are frequently a good deal more than a comparable loan.
Then read the terms rather than the rate. What is the advance rate, and against which invoices — are certain customers or overseas debtors excluded? Is it recourse or non-recourse, and if a customer does not pay, who carries it? What is the minimum term, the notice period and the minimum fee if you use it less than expected? Those clauses decide the cost of a facility far more often than the headline percentage does.
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It depends which product you choose, and it is worth deciding deliberately rather than by default. With factoring, yes — the funder handles collections and your customers pay them directly. Plenty of businesses find that a relief rather than a problem, because it removes credit control entirely. With invoice discounting the facility is normally confidential: you keep collections and customers deal with you exactly as before. Funders generally want more in exchange for that — stronger systems, better reporting and usually a larger, more established business. If customer perception genuinely matters in your sector, discounting is the product to ask about first.
No. Selective and single-invoice finance let smaller businesses fund one customer or one invoice at a time, with no whole-book commitment and no long contract. Funders may still expect a minimum annual turnover — around £30,000 is common. It costs more per invoice than a full facility, which is the trade for the flexibility, and it suits an occasional need — one large order, one persistently slow payer — rather than a permanent arrangement. Full factoring facilities are also available to small businesses and often make more sense than owners expect, because the funder taking over collections removes credit control as a job. For a small team that is a real cost saving rather than an inconvenience.
Factors typically advance 75% to 95% of invoice value, and factor rates commonly run from 0.5% to 5% of that value. There are usually two charges: a service fee for running the facility, expressed as a percentage of turnover, and a discount charge on the funds advanced, which behaves like interest. Quoted separately they look modest; combined and annualised against the money you actually draw, they are frequently more than a comparable loan. But the rate is not what to read first. Check the advance rate and which invoices qualify — overseas or heavily concentrated debtors are often excluded. Check whether it is recourse or non-recourse, so you know who carries an invoice that never gets paid. Then check the minimum term, the notice period and any minimum monthly fee, because those clauses decide the real cost far more often than the headline percentage does.
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