Invoice factoring: the lender collects, and the cash arrives when the invoice is raised

Factoring is the older of the two invoice finance products and the one with the collections built in. A company raises an invoice on 30, 60 or 90 day terms, the factor advances most of its value at once, chases the customer for payment and pays the balance over when the money arrives. This page explains the mechanics, what recourse means, how it differs from discounting and what a factor wants to see. CapExpand is a broker. We have access to a range of UK commercial finance lenders through our principal, White Rose Finance Group Limited. The lender makes every credit decision.

What invoice factoring is

In a factoring agreement the company assigns its trade debts to the factor. The factor buys the right to collect each approved invoice, advances an agreed percentage of its value when it is raised, collects the full amount from the customer on the due date and pays the company the remainder less its charges. The company's working capital stops depending on how quickly its customers pay, because the factor has paid most of each invoice already.

The facility revolves with the ledger. Every new invoice adds to the availability, every collection clears an advance, and the factor sets a limit for each customer it is prepared to fund as well as a limit for the facility as a whole. The debt has to be a clean business-to-business debt: goods delivered or work done, evidenced, uncontested, and not already pledged to a bank under a debenture.

How a facility runs, step by step

1. The factor approves the ledger. It reviews the customers, sets a funding limit on each and agrees the overall facility, the advance rate and the recourse period.
2. You raise the invoice with a notice of assignment. The invoice goes to the customer carrying the factor's payment details and is notified to the factor, usually through the accounting software.
3. The advance is paid. The agreed percentage of the invoice is made available, and you draw it when you need it.
4. The factor collects. It sends statements and reminders and takes the customer's calls about payment, under a collections procedure agreed with you so that your customer relationships are handled the way you want.
5. The balance is released. When the customer pays, the advance is cleared, the charges are deducted and the rest is paid to the company.

Who talks to your customers

The factor does, and that is the point of the product for the businesses that choose it. A company without a credit controller, or whose director is chasing debts in the evening after a day on site, hands that work to a team that does nothing else. The agreement sets the tone: how many days after the due date the first reminder goes, whether the factor telephones, and when a debt is treated as overdue. A business that wants no contact between the funder and its customers is looking at confidential invoice discounting instead, if a lender will offer it.

Recourse and non-recourse

Recourse factoring leaves the credit risk with the company. If the customer has not paid by the end of the recourse period, which the factor sets in its terms, the invoice is reassigned to the company and the advance against it is reversed. Non-recourse factoring moves the risk of an approved customer's insolvency to the factor, within the limit it set for that customer, in return for a higher charge. A disputed invoice is never covered: if the customer withholds payment because of the goods or the work, the debt comes back to the company in either case.

Factoring against invoice discounting

The money works the same way in both. The difference is who runs the sales ledger and whether the customer knows. Factoring is disclosed and the factor collects; discounting can be confidential and the company collects. Lenders offer discounting to businesses whose own credit control they are prepared to rely on and factoring to the rest, and a business can move from one to the other as it grows. Which one a business uses is its own decision; the invoice finance page sets the two side by side with selective and single-invoice facilities.

How the cost is expressed

A factoring agreement prices a service fee as a percentage of the turnover factored, which pays for the ledger management and the collections, and a discount charge as a margin over a reference rate on the money advanced, which is the interest. The reference rate is commonly Bank Rate, which the Bank of England has held at 3.75% since 18 December 2025. Because the factor is doing the collecting, the service fee is where factoring and discounting differ most in price. Each lender publishes its own fee, margin, minimum annual charge and arrangement fee, and they change; we set out the figures each lender provides so you can compare them.

Who uses it

Recruitment agencies that pay contractors every Friday and are paid monthly, subcontractors on 60-day terms, hauliers, wholesalers paid on retailer terms, and any growing company whose debtors are strong but whose own collections are not yet a department. The haulage invoice finance page describes one sector in detail; the forty town pages under invoice finance describe the invoice-shaped sectors in each place from the ONS business register.

What a factor asks for

An aged debtor report, the last filed accounts, recent management figures, the last 3 months of bank statements or an Open Banking connection, sample invoices with the purchase orders and proof of delivery behind them, and the terms of trade with the main customers. Because the factor will be collecting the debts itself, it reads the customers harder than it reads the company: who they are, how concentrated the ledger is, and whether anything in the terms of trade (retentions, applications for payment, contra accounts) would stop an invoice being collected in full.

Enquiring does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file. We arrange finance only once a business has traded for 3 months, for amounts from £10,000. We work with UK limited companies and LLPs only, for business and commercial purposes.

Sources

The definitions above follow the industry body's and the British Business Bank's published descriptions. No lender's figures appear on this page; each lender publishes its own and they change.

1. UK Finance, Invoice Finance and Asset Based Lending
2. British Business Bank, invoice finance guidance
3. Bank of England, Bank Rate (3.75% since 18 December 2025)
4. FCA, consumer credit and the regulated perimeter
5. Companies House, CapExpand Ltd 14433858