Invoice Factoring
Invoice Factoring and Invoice Discounting: Unlocking Business Cash Flow
Invoice discounting is a popular form of short-term borrowing that allows businesses to access cash tied up in outstanding invoices. Similar to invoice factoring, it is designed to improve a company’s working capital and cash flow position. However, invoice discounting has a unique advantage: businesses retain full control over their book debts, sales ledger, payment chasing, and invoice processing. This discretion means that customers are usually unaware of the business’s arrangement with the lender, making it a confidential financing option.
Where we advise: we arrange invoice factoring and invoice discounting for clients across England and Wales, working from our offices in Willenhall, Dagenham, Rainham and Putney. See areas we cover for the postcodes each office serves.
With invoice discounting, businesses can bridge the gap between issuing invoices and receiving payments, a common challenge in industries with payment terms of 30 to 90 days. By borrowing against the value of their invoices, companies can maintain liquidity, pay creditors on time, and support day-to-day operations. This method is particularly beneficial for companies looking to maintain control over customer relationships while enhancing their financial flexibility.
On the other hand, invoice factoring offers a slightly different approach to short-term financing. In this arrangement, a business sells its outstanding invoices to a third-party finance company, known as the factor. The factor advances up to 80% of the invoice value to the business immediately, providing quick access to essential cash. This is especially useful for businesses experiencing cash flow gaps caused by delayed customer payments.
Invoice factoring is commonly used in industries such as construction, manufacturing, logistics, printing, recruitment, security, transport, and wholesale. These sectors often face cash flow challenges due to long payment cycles and rely on factoring to maintain operational stability.
Give us a call today on 020 8088 2211 and speak to our factoring adviser.
Unlike invoice discounting, invoice factoring involves the factor taking on responsibility for managing the credit control of the business. This includes chasing payments, processing invoices, and collecting debts directly from customers. As a result, customers are aware of the business’s relationship with the factoring company, which may impact perceptions of the company’s financial standing. However, the benefit is that the business is relieved of the administrative burden of managing credit control.
The terms of invoice factoring deals can vary, but most factors advance businesses up to 80% of the invoice value upfront. The remaining balance, minus the factoring company’s fees, is paid to the business once the customer settles the invoice. This arrangement ensures businesses can access the cash they need without waiting for lengthy payment terms, enabling them to focus on growth and operations.
Both invoice discounting and invoice factoring are powerful tools for businesses seeking to improve cash flow. Invoice discounting is ideal for companies that want to maintain control over their credit management while accessing funds quickly. In contrast, invoice factoring is suitable for businesses that prefer to offload credit control responsibilities to a third party while still securing immediate cash flow.
At Giles Finance, we offer tailored solutions for both invoice discounting and factoring to meet the unique needs of your business. Whether you’re in construction, logistics, manufacturing, or any other sector, we work closely with trusted lenders to provide flexible and competitive financing options.
By leveraging invoice finance, businesses can unlock cash tied up in unpaid invoices, strengthen their financial position, and maintain smooth operations. Whether you need confidential funding through invoice discounting or comprehensive credit control support via invoice factoring, Giles Finance is here to help.
Invoice factoring vs invoice discounting vs selective factoring — compared
All three release cash against unpaid invoices. The differences are who collects the debt, whether your customers know, and how much you commit to the facility. Choosing the right one matters more than chasing the highest advance rate.
| Invoice factoring | Invoice discounting | Selective (spot) factoring | |
|---|---|---|---|
| Typical advance | 80% – 90% of invoice value | Up to 85% – 90% | 70% – 90% of chosen invoices |
| Typical service fee | 0.75% – 3% of turnover | 0.2% – 1% of turnover | 2% – 5% per invoice |
| Discount (interest) charge | 1.5% – 4% over base on funds drawn | 1.5% – 3.5% over base | Included in the per-invoice fee |
| Who runs the sales ledger | The factor, in your name | You | You, or the funder for that invoice |
| Do customers know? | Yes — payments go to the factor | Usually not (confidential) | Usually yes |
| Typical minimum turnover | From around £50,000 a year | Usually £500,000+ a year | No minimum |
| Best suited to | Start-ups and growing SMEs that want credit control taken off their hands | Established businesses with their own credit control | Occasional cash-flow gaps or one large contract |
Indicative ranges only, correct as at 2 October 2026, with base rate at 3.75%. Fees depend on turnover, the number and quality of your customers, average invoice size and sector.
How much does invoice factoring cost? A £100,000 worked example
A recruitment business invoices £100,000 a month to customers on 60-day terms. Its factoring facility advances 85%, charges a 2.5% service fee on invoices factored and a discount charge of 3% over base (6.75% a year) on the money drawn.
| Invoices raised in the month | £100,000 |
| Cash released within 24–48 hours (85%) | £85,000 |
| Service fee (2.5% of invoice value) | £2,500 |
| Discount charge: £85,000 × 6.75% × 60 days ÷ 365 | c. £943 |
| Total cost for the month | c. £3,443 — about 3.4% of the invoices |
| Balance paid to the business when customers pay | £15,000 less the charges, c. £11,557 |
Whether 3.4% is good value depends on what the cash enables — taking on a larger contract, paying a supplier early for a discount, or meeting payroll without an overdraft. Because the factor also runs credit control, many smaller firms also save the cost of a part-time credit controller. Factoring with bad-debt protection (non-recourse) costs more but means the factor absorbs the loss if an approved customer becomes insolvent.
Figures are illustrative and rounded. Fees vary by provider and sector. This is not an offer of finance.
How to choose an invoice factoring company
There are well over 100 invoice finance providers in the UK, from the clearing banks to independent specialists. The cheapest headline fee is rarely the cheapest facility. These are the points we compare for you:
- Total cost, not headline rates. Add the service fee, discount charge, minimum monthly fees, credit-check fees, bad-debt protection premiums and any audit fees, and compare on your real turnover.
- Contract length and notice period. Twelve-month minimums with three months’ notice are common; some providers offer rolling monthly terms.
- Exit and termination fees, and how quickly your ledger is handed back if you leave.
- Concentration limits. If one customer is more than 25% – 30% of your ledger, some providers will cap funding against them.
- Sector experience. Recruitment, construction (with applications for payment and retentions), haulage and wholesale all have specialist funders who advance more.
- How they treat your customers. In factoring the provider contacts your customers, so their credit-control style reflects on your business.
Invoice discounting companies — when to move up
Once turnover passes around £500,000 and you have reliable credit control in-house, confidential invoice discounting usually costs less and keeps the facility invisible to customers. Larger businesses can combine invoices with stock, plant and property in an asset-based lending facility, and equipment purchases can be funded separately through asset finance.
Contact Giles Finance today to learn how invoice discounting and invoice factoring can transform your cash flow and drive your business forward.
Giles Finance – Your Partner in Invoice Finance Solutions.
Call our invoice discounting team a call NOW on 020 8088 2211
A worked example
Say your business raises a £50,000 invoice on 60-day payment terms. Under a typical factoring facility with an 85% advance rate, roughly £42,500 could be released within 24–48 hours of the invoice being raised, rather than waiting two months for the customer to pay. The remaining £7,500, less the service fee and discount fee agreed with the funder, is paid once the invoice is settled. Advance rates, fees and turnaround times vary by provider, sector and customer credit risk, so any facility is worth comparing on total cost, not headline advance rate alone — that comparison is part of what we do for you as a whole-of-market broker.
Last reviewed: 2 October 2026 by Dennis Galley, Operations Director & Compliance Officer at Giles Finance & Consultancy Services, authorised and regulated by the Financial Conduct Authority (FRN 726857). Invoice factoring and invoice discounting are commercial funding products and, unlike residential mortgages, are generally not activities regulated by the FCA; we arrange them on a whole-of-market basis and set out the terms of any facility clearly before you commit.
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Invoice Factoring FAQ's
How does invoice factoring work?
Invoice factoring allows a business to release cash tied up in unpaid invoices by selling them to a factoring company, which advances a percentage of the invoice value immediately.
How much of an invoice value can be advanced?
Typically 80% to 90% of the invoice value is advanced upfront, with the balance, less fees, paid once the customer settles.
Is invoice factoring the same as invoice discounting?
No. With factoring, the finance provider usually manages credit control and collections; with invoice discounting, the business retains control of its own sales ledger.
Which businesses benefit most from invoice factoring?
Businesses with long payment terms or fast growth, particularly in sectors like recruitment, manufacturing and wholesale, often benefit most from the improved cash flow factoring provides.
Will my customers know I am using a factoring company?
With disclosed factoring, customers pay the factoring company directly and are aware of the arrangement; confidential facilities are also available with some providers so customers continue paying as normal.
What does invoice factoring cost?
Costs usually comprise a service fee, charged as a percentage of turnover, plus a discount fee similar to interest on the funds advanced; overall cost depends on invoice volume, customer risk and facility size.
Can factoring be arranged for a single large invoice?
Yes, single invoice finance is available for businesses that want to release cash from one specific invoice rather than committing their whole sales ledger to an ongoing facility.
Is invoice factoring available to start-up businesses?
Yes, factoring is often more accessible to newer businesses than traditional lending because approval is based largely on the creditworthiness of your customers rather than your own trading history.
What is recourse and non-recourse factoring?
With recourse factoring, the business is liable if a customer fails to pay; with non-recourse factoring, the factoring company generally absorbs the bad debt risk, usually at a higher cost.
Can I factor invoices to overseas customers?
Yes, export factoring is available for invoices raised to international customers, though terms and credit checks vary depending on the customer's country and payment history.
Do you arrange invoice factoring for companies across England?
Yes. Invoice factoring and invoice discounting facilities are arranged for companies throughout England and Wales, from London and the South East to Birmingham, Manchester, Leeds and Bristol, across recruitment, construction, manufacturing, haulage and services.
How much working capital can invoice finance release?
Most facilities advance between seventy and ninety percent of each invoice value within twenty-four to forty-eight hours of issue, with the balance, less fees, paid when your customer settles. Facilities scale automatically as turnover grows.