One of the hardest parts is waiting for customers to pay their invoices. Invoice finance and invoice factoring help you get your money faster. But what’s the difference between the two?

Table of Contents

1. Key Takeaways

2. What Is an Invoice?

3. What Is Invoice Finance?

4. What Is Invoice Factoring?

5. How Are Invoice Finance and Invoice Factoring the Same?

6. How Are They Different?

7. Pros and Cons of Invoice Finance

8. Pros and Cons of Invoice Factoring

9. Which One Should You Choose?

10. A Real-Life Example

11. Why Do Businesses Use These Tools?

12. How Much Does It Cost?

13. Final Thoughts

Key Takeaways

• Invoice finance and invoice factoring help you get paid faster by using your unpaid invoices.

• The main difference is who collects the payment: you (invoice finance) or the factoring company (invoice factoring).

• Invoice finance is more private and gives you more control.

• Invoice factoring is helpful if you want someone else to handle customer payments.

• Both can help your business grow by improving cash flow and freeing up money for other needs.

1. What Is an Invoice?

An invoice is a document you send to a customer after they buy something from your business. It tells them how much they owe and when they need to pay.

Example: If you clean someone’s office for £300, you send them an invoice that says, “Please pay £300 in 30 days.”

But what if you need the money now? That’s where invoice finance and factoring come in.

2. What Is Invoice Finance?

Invoice finance helps you get most of your money right away, without waiting for your customer to pay.

Here’s how it works:

You send your customer an invoice.

You also send it to a finance company.

The company gives you most of the money upfront—up to 90%.

When your customer finally pays, you get the rest (minus a small fee).

With invoice finance, you still collect the money yourself. The customer doesn’t need to know you used a finance company.

3. What Is Invoice Factoring?

Invoice factoring also gives you money upfront, but there’s one big difference: the factoring company collects the money from your customer.

Here’s what happens:

You send your customer an invoice.

You send it to the factoring company too.

They pay you up to 90% right away.

They then call or email your customer to collect payment.

After the customer pays, the factoring company gives you the rest (minus their fee).

Your customer will know that a factoring company is involved.

4. How Are Invoice Finance and Invoice Factoring the Same?

Both tools help your business by turning unpaid invoices into fast cash.

They both:

Give you money upfront (up to 90%).

Let you pay bills or invest in your business sooner.

Charge a small fee for the service.

Are great for solving cash flow problems.

5. How Are They Different?

The main difference is who collects the money.

6. Pros and Cons of Invoice Finance

 Pros:

1. You stay in control because still talk to your customers and collect payments yourself. This means you can manage your relationships and keep control over how things are handled.

2. Customers don’t know you’re using invoice finance. Because you’re the one sending invoices and collecting payments, your customers usually don’t know a finance company is involved. This helps your business look more private and independent.
   
3. Usually a little cheaper because invoice finance often costs less than factoring and the reason for that is because you’re doing the chasing payments yourself.
   

 Cons:

1. You must chase customers for payment. You are still responsible for asking customers to pay. This can take time and may be stressful, especially if customers are slow to respond.

2. May not be available to brand new businesses. Some invoice finance providers prefer working with businesses that have a bit more experience or a strong credit team. If your business is brand new, it might be harder to qualify.
   

7. Pros and Cons of Invoice Factoring

Pros:

1. The factoring company handles collections because you don’t need to ask your customers to pay. The factoring company does it for you. This means you don’t have to worry about chasing payments or remembering due dates.

2. It saves you time and effort since someone else is collecting the money, and you have more time to focus on running your business. You can work on sales, service, or planning your next steps.
   

3. Easier to get if you’re a small or new business. Factoring companies mostly care if your customers have good credit—not you. So even if your business is new or still growing, you can still get help.

 Cons:

1. Customers know you’re using a factoring company. Because the factoring company talks to your customers, they will know someone else is collecting the money. Some business owners feel this looks less professional, but many customers don’t mind.

2. You have less control over customer communication. You don’t control how the factoring company talks to your customers. If they are too firm or slow to respond, it could hurt your relationship with that customer.

3. Costs a bit more since factoring often costs a little more than invoice finance. That’s because the company does more work, like managing collections and credit checks.
   

8. Which One Should You Choose?

Pick the one that fits your business needs best.

Choose Invoice Finance if:

1. You have a good finance team.

2. You want to keep your customer relationships private.

3. You want to stay in control.

Choose Invoice Factoring if:

1. You don’t want to chase payments.

2. You’re just starting out.

3. You need back-office help.

9. A Real-Life Example

Meet Alex

Alex runs a printing company. He prints brochures for a big customer and sends an invoice for £5,000. The customer says they’ll pay in 60 days.

But Alex needs cash now to buy paper and pay staff.

Alex uses invoice factoring. The factoring company gives him £4,500 (90%) the next day. The factoring company then talks to the customer and collects the full £5,000 after 60 days. Once that happens, they send Alex the final £500, minus a small fee.

This helped Alex keep running his business without worry.

10. Why Do Businesses Use These Tools?

• They don’t want to wait to get paid.

• They need cash to grow or cover bills.

• They want to take on new projects.

• They want to make sure staff and suppliers are paid on time.

• Invoice finance and factoring help solve these problems fast.

11. How Much Does It Cost?

The cost depends on:

• The size of your invoices.

• How fast your customers pay.

• How many invoices you use.

Fees are usually between 1% and 5% of the invoice amount.

Example: If your invoice is £10,000 and the fee is 2%, you’ll pay £200.

Most business owners say the cost is worth it for faster cash and peace of mind.

12. Final Thoughts

Invoice finance and invoice factoring are great tools for businesses that want to get paid faster.

• If you want privacy and control, go with invoice finance.

• If you want help with customer payments, go with invoice factoring.

Either way, you’re turning unpaid work into working money. That can help you grow, stay on track, and worry less about late payments.

Frequently Asked Questions (FAQs)

1. What is the main difference between invoice finance and invoice factoring?

Invoice finance lets you collect payments from your customers.
Invoice factoring means the factoring company collects the payments for you.

2. Will my customers know I’m using invoice finance or factoring?

With invoice finance, your customers usually don’t know.
With factoring, your customers will know because the factoring company talks to them.

3. Do I get all the money from my invoice right away?

No, you get most of the money—usually up to 90%—within a day or two.
You get the rest after your customer pays, minus a small fee.

4. How fast can I get the money?

You can usually get the money within 24 to 48 hours after sending the invoice.

5. Is this a loan?

No, it’s not a loan. You are using your own money from invoices—you’re just getting it sooner.

6. How much does it cost?

Fees are usually between 1% and 5% of the invoice amount.
Example: If your invoice is £1,000, the fee might be £10 to £50.

7. Can new businesses use invoice finance or factoring?

Yes! Factoring is often easier for new businesses.
Invoice finance may need a stronger credit control team.

8. Can I use it for just one invoice?

Yes, some companies offer single invoice finance or factoring.
You don’t always have to use it for every invoice.

9. Will it hurt my credit score?

No, because it’s not a loan. It doesn’t affect your credit score.

10. What happens if my customer doesn’t pay?Some finance or factoring companies offer non-recourse deals, where they take the loss.
Others may ask you to pay it back. Always check the terms first.