Invoice factoring – Unlock cash flow by selling invoices
Invoice factoring helps businesses improve cash flow by selling their unpaid invoices to a finance provider. Instead of waiting 30–90 days for customers to pay, you get most of the invoice value upfront. The provider then collects payments directly from your customers.
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What is invoice factoring and how it works
What is invoice factoring?
Invoice factoring is a type of invoice finance. It allows businesses to release funds tied up in unpaid invoices by selling them to a finance company (the “factor”). The provider advances up to 90% of the invoice value immediately and handles credit control and collections.
This makes it especially useful for businesses that issue invoices with long payment terms or deal with frequent late payments.
How invoice factoring works
You invoice your customer for goods or services.
You sell the invoice to the factoring provider.
You receive an advance, typically 70%–90% of the invoice value.
The lender collects payment directly from your customer.
You receive the remaining amount, minus service fees.
Invoice factoring example
You invoice a client for £20,000. The lender advances 85% - that’s £17,000.
When the client pays the full £20,000, the lender deducts a 2% fee (£400) and releases the remaining £2,600 to you.
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Financial product information
Representative example*
• 7.63% APR Representative based on a loan of £50,000 repayable over 24 months.
• Monthly repayment of £2,252.94. The total amount payable is £54,070.56
*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.
Annual Percentage Rates
Rates from 2.75% APR
Repayment period
1 month to 30 years terms
Common use cases
Bridging payment gaps
Instead of waiting for 30–90 day invoice terms, you can access working capital almost immediately after invoicing a customer.
Covering operational costs
Factor invoices to cover wages, bills, or stock purchases without tapping into reserves.
Investing in growth
Use released funds for marketing, expansion, or hiring - without needing a long-term loan.
Improving supplier relationships
Pay suppliers on time to protect trading terms and ensure uninterrupted service.
Is invoice factoring right for your business?
Invoice factoring is usually suitable for:
UK-based B2B businesses
companies with £100k+ annual turnover
businesses with regular invoicing cycles
firms needing support with credit control or chasing payments
businesses with clients that pay reliably but slowly
It may not be the best fit for businesses with few or irregular invoices, or those unwilling to disclose finance arrangements to clients.
Invoice factoring vs invoice discounting
Feature | Invoice factoring | Invoice discounting |
Who collects payment | The lender | You |
Client aware? | Yes | Often no (confidential) |
Admin burden | Lower | Higher |
Credit control support | Included | Not included |
Cost | Slightly higher | Slightly lower |
Best for | Growing or time-strapped SMEs | Larger or well-resourced firms |
What are the costs?
Factoring costs vary, but typically include:
service fee: a percentage of the invoice (usually 1–3%)
discount rate: interest on the funds advanced (similar to loan interest)
additional fees: depending on contract type (e.g. termination or minimum usage)
The better your client payment reliability, volume of invoices, and business credit profile, the more competitive your rates are likely to be.
Which industries can benefit from invoice factoring?
Logistics
Any business that deals with other businesses could benefit from invoice factoring. Given the large amount of invoices logistics companies send, invoice factoring could be of particular value to them.
Construction
Similarly, construction companies often invoice other businesses, sometimes in extremely large amounts and with long payment terms. For this reason, invoice factoring could provide some support.
Healthcare
Healthcare companies often raise or pay invoices for medical equipment, essential supplies, and patient care. Invoice factoring can help bridge the gap between raising an invoice and getting paid for these companies.
Key benefits of invoice factoring
✅ Faster access to working capital
✅ No need to chase payments
✅ Improves cash flow predictability
✅ Flexible funding linked to sales
✅ Can grow with your turnover
Alternatives to invoice factoring
You retain client control and collections
Reusable funding for cash flow gaps
Fixed repayment plan for one-off needs
Based on future card sales
Flexible buffer from your bank
Helps you buy or lease business equipment
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Why choose Funding Options by Tide?
Funding Options by Tide helps UK SMEs find fast, tailored business finance by connecting them with over 80 trusted lenders. Backed by Tide and FCA-regulated, the service is free and easy to use.
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Learn more about invoice factoring
What percentage of an invoice will I receive upfront?
Typically 70–90%, with the balance released (minus fees) when your customer pays.
Will my customers know I’m using factoring?
Yes. The factoring provider manages your sales ledger and collects payments directly.
What industries use invoice factoring?
Common in recruitment, transport, manufacturing and wholesale – sectors with long invoice cycles.
Is invoice factoring suitable for small businesses?
Yes. It’s widely used by SMEs that need to bridge payment gaps and don’t want to take on additional debt.
How much does invoice factoring cost?
Costs vary by turnover, industry and risk. They usually include a service fee plus interest on funds advanced.
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
Vivek Seda
Business Finance Manager
Vivek is the Asset Based Lending Manager at Funding Options by Tide. Vivek has been in the industry for over 10 years, working for both lenders and brokers. His product specialisms cover Asset Finance, Invoice Finance, Property Finance and structured transactions.