The thrill of starting your own business is great, but keeping it sustainable financially in those first few months can be difficult. It’s great to have clients and invoices, but remember that those invoices can go unpaid for 30, 60, or 90 days. Meanwhile, your bills cannot wait. You need to pay suppliers, and you need to pay your staff and miss opportunities because cash simply isn’t in the bank yet.
For most UK entrepreneurs, unpaid invoices represent the biggest pain point, and traditional lending hardly serves as a solution. Banks require years of trading history and solid credit scores before approving a business loan. Overdrafts come with high interest and shrinking limits. So where do you turn?
Invoice factoring for startups is a unique and rapidly growing solution that can help startups in the UK reclaim cash on their unpaid invoices, often within just 24 hours. Instead of waiting for customers to pay, you sell those invoices to a factoring company and get an upfront amount, usually 80% to 95% off the invoice value. The factoring company then manages the collection.
This guide will cover all you need to know, from how invoice factoring works and which providers are best for startups to costs and eligibility.
Key takeaways
1. Invoice factoring lets startups access 80% to 95% of their invoice value within 24 hours.
2. Eligibility is based on your customers’ creditworthiness, not your trading history.
3. Invoice factoring is not a loan, so it does not add to your business debt.
4. Top UK providers for startups include Skipton Business Finance, Growth Lending, Kriya, Novuna Business Finance and Ultimate Finance.
5. ComparedBusiness UK lets you compare invoice factoring quotes from multiple providers for free.
6. Invoice factoring is best suited to B2B startups with payment terms of 30 days or more.
Get Best Invoice Factoring Providers Quotes
What Is Invoice Factoring For Startups?
Invoice factoring, also referred to as ‘accounts receivable financing’, is a financial arrangement in which a business sells its unpaid invoices to an unaffiliated third-party finance company, known as a ‘factor’.
In exchange, the factor offers a cash advance upfront, typically somewhere between 80% and 95% of the invoice amount. From this moment on, the factor goes on to collect payment from your clients.
This is a game-changer for startups. Invoice factoring does not depend on your trading history or credit score like a bank loan. Instead, the factoring company evaluates how creditworthy your customers are who owe you money. This gives even a startup that has just launched the ability to get funding if they can show B2B invoices and solid customer contracts.
When the customer pays the invoice in full, the factor forwards you the remaining balance minus their service fee, typically between 0.5% and 3% of the value of that invoice.
How It Works:
| 1 | You Raise An Invoice | Send your invoice to a client as normal, with your agreed payment terms (30, 60 or 90 days) |
|---|---|---|
|
2 |
Submit To The Factor |
Submit the invoice to your factoring provider; this can often be done digitally in minutes |
|
3 |
Get Your Advance |
The factor releases 80% to 95% of the invoice value to your bank account, often within 24 hours |
|
4 |
Factor Collects Payments |
The factoring company contacts your client and manages the payment collection process |
|
5 |
Receive Your Remaining Balance |
Once the client pays, the factor releases the remaining balance to you, minus their fee |
In simple words, invoice factoring converts your unpaid invoices into immediately available working capital, without incurring any new debt.
Read More: Invoice factoring costs in the UK
Top 5 Invoice Factoring Providers For Startups
Choosing the right factoring partner is critical for your startup’s growth. Here we have listed the top five best providers of invoice factoring for startups in the UK:
| Provider | Best For | Advance Rate | Key Features | Min. Turnover |
|---|---|---|---|---|
|
Skipton Business Finance |
New and growing startups |
Up to 90% |
No trading history required |
No defined minimum turnover |
|
Growth Lending |
High-growth tech startups |
Up to 85% |
Flexible scaling facilities |
£500k+ |
|
Kriya |
B2B startups |
Up to 90% |
Same-day funding |
£100k+ |
|
Novuna Business Finance |
Established-sector startups |
Up to 90% |
Dedicated relationship managers |
£250k+ |
|
Ultimate Finance |
Early-stage startups |
Up to 95% |
Highest advance rate |
No set minimum turnover |
Note: The advance rates mentioned above are indicative and may change at any time. For tailored quotes, use ComparedBusiness UK to compare top invoice factoring providers in the UK.
Read More: Top 9 Invoice Factoring Companies in the UK
How Do Different Types Of Invoice Factoring Work?
The basics of invoice factoring are quite straightforward. Here is how different types of invoice factoring works for startups:
1. Disclosed Vs Confidential Factoring
With disclosed factoring, your customers know that a third-party factor takes care of your receivables. This is the usual setup for an ordinary startup.
In confidential or undisclosed factoring, the agreement is kept between you and the factor; your customers pay you directly and have no way of knowing that they are in a relationship with the factor. Confidential factoring is usually offered to more established businesses with robust credit control in place.
Want to learn more about the difference between disclosed and confidential factoring?
See Our Guide: Disclosed and Undisclosed Factoring: What’s the difference?
2. Recourse Vs Non-Recourse Factoring
With resource factoring, if your customer does not pay, the factor will require that you return the advance.
Non-recourse factoring provides built-in bad debt protection because the factor absorbs the risk of non-payment. However, you must be aware that non-recourse factoring is generally slightly pricier, although it could save your startup from disaster if you work in an industry with a sensitive risk profile.
Want to learn about the cost of debt factoring?
Read Our Guide: Debt Factoring Costs (Guide)
3. Selective And Spot Factoring
You do not need to factor every single invoice. Selective or spot factoring allows you to select certain invoices to submit, which is great for when you want a one-off cash flow solution rather than an ongoing facility. Its flexibility makes it especially appealing for early-stage startups with inconsistent invoicing volumes.
Read More: Spot Factoring Costs Explained
Advantages Of Invoice Factoring For Startups
Invoice factoring has a specific set of advantages that elevate it as one of the most startup-friendly finance solutions available in the UK.
| Immediate Cash Flow: | Get paid 80% to 95% of invoice value within 24 hours, no longer waiting up to 60 or 90 days for clients to pay |
|---|---|
|
Scales With Your Growth: |
Your funding grows with your sales. The more you invoice, the more money you can get access to |
|
No Debt Added: |
Factoring is the sale of an asset (your invoice), not a loan. So, it will not show as a debt on your balance sheet |
|
No Trading History Needed: |
Invoice factoring is not about your creditworthiness but your customers. Perfect for brand-new startups |
|
Saves Time on Admin: |
The factor takes care of collecting the invoice so that you can spend your time growing and running the business |
|
Bad Debt Protection: |
If your customer does not pay, non-recourse factoring provides some protection that minimises your risk |
When To Choose Invoice Factoring for Startups?
Invoice factoring is a powerful tool, but it only works when conditions are right. Here is a quick checklist to help you see if invoice factoring is a great fit for your business or not:
| Suitable | Not Suitable |
|---|---|
|
You sell business-to-business (B2B) |
You sell direct-to-consumer (B2C) |
|
Your customers take 30 to 90 days to pay |
Your invoices are of low value (less than £500) |
|
You are scaling quickly and in need of working capital |
Your customers have a track record of non-payment |
|
You run a construction, recruitment, logistics or IT business |
You get a handful of invoices per month |
|
You are looking to outsource credit control |
You want to keep your client relationships confidential |
|
You want to win large contracts without cash flow risk |
|
Final Verdict: If your startup fits in the left column, then invoice factoring is one of the best financial decisions you make as a startup. If you are unsure, the team at ComparedBusiness UK can help you assess whether it is the right fit before you commit to anything.
How To Apply For Invoice Factoring As A Startup?
Getting started with invoice factoring is much easier than getting a traditional business loan. You can have a facility setup and your first advance released within just a few days of application with most providers. Here is what to expect:
| 1 | Assess Your Needs | Go over your average invoice values and payment terms and how much working capital you require. This will help you identify what advance rate and facility size you need to be searching for |
|---|---|---|
|
2 |
Compare Providers |
Compare invoice factoring quotes from multiple providers in the UK with ComparedBusiness UK. It will save you hours of research and will guarantee that you get the best rate |
|
3 |
Submit Your Application |
Provide your factoring provider with your company registration number, most recent invoices or debtor ledger, and basic financial information such as sales and customer details for credit assessment |
|
4 |
Credit Checks On Your Customers |
The invoice factoring company evaluates your customers' creditworthiness. This process is the reason even startups without any trading history can get the advance |
|
5 |
Agreement And Setup |
Once approved, you will sign a factoring agreement outlining the advance rate, fees, and terms. Setup typically takes 24 to 72 hours |
|
6 |
Get Your Advance |
Submit your first invoice and collect your advance, typically within a day of the facility going live |
How To Find The Best Invoice Factoring Providers For Startups
Different factoring providers suit different business needs; the best fit for a Manchester-based logistics startup is likely to be very different from that of a tech startup in London.
Here Is What You Should Look for When Comparing Your Options:
1. Advance Rate: Choose service providers that provide 80% to 95% of invoice value.
2. Eligible For Startups: Make sure the provider has no minimum trading history requirement.
3. Transparent Fees: Understand the hidden fee structure, such as the service charge, credit check fees, and minimum volume charges.
4. Contract: Some providers offer rolling monthly contracts, while others lock you in for 12 to 24 months.
5. Experience: A provider that mainly serves your sector will have a better understanding of the way in which you issue invoices.
6. Funding Speed: For startups, getting funded in 24-hours can make the difference between paying payroll and missing it.
7. Recourse Vs Non-Recourse Options: Consider whether bad debt protection is worth the additional cost for your risk profile.
Comparing providers manually is time-consuming and can be confusing, especially when you are already juggling the day-to-day demands of running a new business. That is precisely why ComparedBusiness UK exists to help you find the right invoice factoring providers within minutes.
Find The Best Invoice Factoring Providers For Startups With ComparedBusiness UK
ComparedBusiness UK is the UK’s leading comparison platform for business finance, helping businesses find smarter financial solutions. Instead of spending hours researching each factoring company, simply fill out our free quote form and get quotes from multiple top-rated UK providers, all in one place.
Why Use ComparedBusiness UK:
- Completely free to use, no strings attached or payment required.
- Get comparison quotes from leading UK factoring providers in just a few minutes.
- Get customised quotes based on your volume of invoices and your industry.
- Funding sources tailored to new and startup businesses.
- Save time and money; we will do all the work for you.
Whether you are a struggling start-up looking for your first factoring facility or perhaps an established early-stage company ready to scale, ComparedBusiness UK will connect you with the right providers at the right price.
Just fill in our quick quote form and we will connect you with the top invoice factoring providers in the UK.
FAQs
Once your factoring facility is approved, which usually takes 24 to 72 business hours, you can get your funds within 24 hours of submitting an invoice. This is a huge advantage that invoice factoring has over more traditional forms of business lending, which can take weeks for approval.
Invoice factoring is not a loan. It is the selling of an asset (your unpaid invoice) in return for immediate cash. It means no debt is created, no collateral is required and it is not dependent on your personal or business credit history.
Invoice factoring is ideal for B2B startups in industries where payment terms tend to be long, such as recruitment, construction, manufacturing, logistics, IT services and wholesale.
