What is Factoring?

Factoring is a simple way for businesses of all sizes who offer trade credit to their customers to get access to working capital facilities, with a Bank or Finance Company, agreeing to purchase your sales invoices and then advancing an agreed percentage of these invoices to you, normally within 24 hours of their creation.

Typically, you will be able to raise between 75% and 90% of each invoice you raise, inclusive of VAT, where applicable.

Once the Bank/Finance Company has purchased the sales invoices, they will then perform all aspects of Credit Management so will issue monthly statements, chase outstanding debts direct with your customers and collect and allocate the cash payments when they are received.  When your customer pays, the balance of the invoice less any charges is then paid to you.

How does Factoring work?

The Bank/Finance Company will enter into a legal agreement with you that effectively purchases the eligible sales invoices and will then advance cash to you, up to the agreed prepayment percentage.

Eligible sales invoices are invoices that still remain unpaid, but not in dispute with your customer, 90 days from the end of the month in which the invoice was first raised, so in effect you can obtain financing on outstanding invoices up to 120 days from the first issuance.  This is called the Recourse period. If you have particularly long trade credit terms that may see the Recourse period exceeded, some funders will agree to extend these terms to say 150 days for these customers.

The funder will also commence their sales ledger management or credit management from the date of the Agreement. This will entail the funder making direct contact with your customers to advise that they have now purchased the invoice and to give them details of where payment is to be made in the future.

Once cash is received, the remaining balance, less any charges will be returned to you.


Company A has outstanding sales invoices of £100,000 inc VAT all of which are within the 120 day recourse period and none are in dispute.

On commencement of the facility, the funder has agreed to advance cash at a 85% prepayment rate so will transfer a maximum of £85,000 to your Bank account.

Each invoice raised thereafter will be purchased by the funder and a further 85% of the invoice value made available to you.

When a customer pays an invoice, you will receive the balance of the invoice (i.e. invoice value less 85% already advanced, less any charges).

How will Factoring benefit my business?

  • The cash released from the sales ledger can be utilised immediately to meet your day to day funding needs.
  • Funding is secured on your sales invoices so financing is available from start up, up to more established businesses.
  • Facilities are dynamic and can be tailored to your business needs rather than rigid like more traditional overdraft facilities.
  • Professional credit management and collections provided by the funder can lead to substantial administrative cost reductions and faster debt collection leading to lower interest charges.
  • Some funders will offer additional services such as Bad Debt Protection, whereby for a premium, they will offer the option of including protection against bad debts. This will help protect future profits and cash flow.

For further information on factoring or any other of our products and services, please complete the Get A Quote, Contact Form or email info@harrisonsfinance.uk.com. Alternatively simply telephone our national rate number 0845 601 5343 or contact your local Harrisons office, details of which can be found within the Contact Us section.