Invoice factoring is a financial product that enables businesses to sell unpaid invoices to a third-party factoring company. The company buys a percentage of the total value of the invoices off the business and then is responsible for collecting the invoice payments from customers.
Benefits
Quick at releasing capital
Reduce time spent on chasing late payments from customers
Less expensive than working with an equity investor.
Limitations
There is a risk of it affecting customer relationships as they must be aware that you are using a third party.
Loss of control as you are handing over responsibility to the third party.
The costs involved are higher than a bank loan; this type of financial solution is advised for businesses with a high-profit margin.
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