Invoice factoring companies, and what each one asks of you

Published minimums, checked

How to shortlist a factor in an afternoon

1. Work out who your customers are. A factor is buying their promise to pay, so a business invoicing three large corporates is an easy file and a business invoicing forty small ones is a harder, more expensive one.
2. Decide whether your customers can know. Disclosed factoring means the factor collects in its own name; confidential facilities cost more and keep the arrangement between you and the lender.
3. Ask for the all-in cost, not the discount rate. The advertised percentage is one line; service fees, minimum monthly volumes, termination notice and the reserve held back are the rest of it.
4. Ask what happens if an invoice is never paid. Recourse means you buy it back, non-recourse means the factor wears the loss, and the price difference between them is the price of that risk.

Why so few factors publish a requirement

Of the seven invoice factoring companies in this record with a live factoring page, one publishes anything resembling an eligibility bar and it is the statement that there is no minimum credit score. The rest were read in full and publish neither a score, a revenue floor nor a trading history. That is not evasion in the way it is when a term lender does it. A factor prices each ledger separately, because the same business with two blue-chip customers and the same business with forty small ones are genuinely different risks, and no single number would survive contact with either. It does mean that shortlisting factors on published criteria is impossible, and shortlisting them on the questions above is not.

What a factoring company will actually ask for

Expect to hand over an aged debtors listing, a sample of your invoices, your customer list and recent bank statements. Expect the factor to credit-check your customers rather than you, and to set a limit per customer rather than one limit for the facility. Expect a notice period. None of that appears on a factoring company's marketing page, which is why the useful comparison is not between advertised rates but between the four questions above asked of three factors on the same afternoon, with the same ledger in front of each of them.

Where factoring is the wrong answer

Factoring only works if somebody owes you money on terms. A retailer paid at the till, a restaurant, a business that invoices consumers rather than other businesses, and a startup with no ledger yet all have nothing to sell a factor, and every one of them is better served by a line of credit or an equipment facility. Factoring is also the wrong answer when the problem is not timing: it converts a receivable into cash today at a cost, and if the business is losing money on the work itself, arriving at the loss faster does not help.

Common questions

Do invoice factoring companies check my credit score?

Usually far less than a term lender does, because the risk sits with the customer who owes the invoice. Charter Capital publishes the strongest version of this on its own site, stating that there is no minimum credit score required. Most other factors in this record publish no criteria at all, which means you have to ask rather than assume.

How much do invoice factoring companies charge?

None of the factors in this record publishes a rate on the pages checked, so any figure quoted to you should come from the factor itself and in writing. Ask for the discount rate, the service fee, the reserve percentage, the minimum monthly volume and the notice period together, because the advertised number is rarely the bill.

What is the difference between a factoring company and an invoice finance broker?

A factoring company funds the invoice itself. A broker places you with one and is paid for the introduction. Both are legitimate; the difference matters because a broker's shortlist is the panel it has, and it is worth asking how many factors are on that panel before you accept it as the market.

By borrowing product

• merchant cash advance: what the lenders who offer it actually require
• equipment financing: what the lenders who offer it actually require
• invoice factoring: what the lenders who offer it actually require