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​What Is Invoice Factoring?

Estimated Read Time: 3 Minutes

JESSICA LAMBERT , 27 January, 2023

Did you know that surveys have found that almost 10% of SMEs receive more than three-quarters of their payments behind schedule? On average, invoices are paid 74 days after being issued – that is over double the agreed terms!

With that in mind, it is easy to understand why invoice finance is such an important tool for businesses.  But this has not always been the case. Historically an industry plagued by additional charges and fees, known as disbursements and a too-close-for-comfort relationship with insolvency practitioners, Invoice Finance has undergone something of a renaissance in recent years. Factoring, in particular, was traditionally labelled ‘the finance of last resort’ but in recent times, new players to the market and a commitment to transparency for customers from alternative lenders (like Nucleus) has driven up standards in the industry and proved the validity of this useful financial tool for all types and sizes of business.

Managing to keep your head above water in business can sometimes be tricky. Often, your company is expected to provide customers with credit terms that extend beyond the ones given to you by your suppliers, which in turn can create some challenging gaps in cash flow.

That is where invoice finance provides a solution. It is the advance of money against the value of the client’s unpaid invoices. The client is advanced payment equivalent to a percentage of the value of the invoices (something referred to as the advance rate).

This type of asset-based lending is a great way for businesses to get access to funds that are currently tied up in unpaid invoices issued to their customers. It enables a business to get immediate access to funds after raising an invoice, as opposed to waiting on their customers to pay up.

There are two types of management for invoice finance: factoring and discounting, in this article we will explain factoring in a little more detail.


This option involves the finance provider taking full responsibility for the sales ledger management process, which includes credit control and payment collection.

To break that down a little further, it would mean that they would deal with the collection of payments for your invoices from your customers directly, rather than you or your business having to do so.

Factoring is a fantastic tool for businesses that need money to fill the cash flow gaps they are currently faced with, whilst they wait for their customers to pay them what is due. But better yet, there is no requirement for them to chase down their payments as the factoring company will manage all of those time-consuming processes themselves.

Streamline Your Accounts Receivable 

Factoring is a great option if your business is looking to streamline its accounts receivable.  It allows you to eliminate the time consuming manual processes that would need to be part of your day-to-day business activities, which in turn speeds up invoice payments.

Factoring can free up some time for your business to concentrate on other key activities, but that does mean that your customers will be aware of the fact you are working with an external finance provider.

Customer Contact

One concern that businesses have always had with invoice factoring revolves around customer contact. It is the reason behind many businesses walking away from what would otherwise be an appealing option.

This is a big issue for most businesses who rely on their consistent, high levels of customer service to retain their customers. Surrendering the control of these relationships to an external finance provider, allowing them to perform collections and manage credit control is scary for a lot of businesses in a world where customer service and experience is ranked top of the list of priorities and yet it may not be the top priority for the lender.

Get Payments on Time by Looking More Authoritative

Invoice factoring can have the effect of making your business look more professional. Why? Well, some customers simply react better to authority and therefore may respect a factoring company more than they respect those working directly for your business. This can sometimes make all the difference between getting your money on time and getting it 74 days late.

Not all businesses have the internal resources necessary to manage their sales ledger efficiently – it can be very time-consuming and chasing payments is a big job. Partnering with a factoring company provides more than just financial support for your business – the administrative burden is also managed for you.

Our products and services come with guaranteed expertise, honesty and certainty. If you would like to find out more, browse our unsecured loan options and apply for a loan today!





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