Late customer payments are one of the most common reasons for cash flow stress in otherwise healthy companies. Sales are booked, work is delivered and invoices are issued, but cash still takes weeks or months to arrive. In the meantime, payroll, rent and suppliers need to be paid.
Invoice-based funding gives businesses another option. Instead of waiting for customers to pay in full, companies can raise cash against their receivables and use that liquidity to stabilise operations and support growth. Two of the most common tools are invoice finance and factoring.
This guide explains what each solution is, how they differ, the main advantages of each and how Financely Group helps businesses choose and secure the right structure through lenders that focus on receivables-backed funding.
Invoice finance is a short-term funding facility where a lender advances a percentage of a company’s outstanding invoices. The business keeps responsibility for collections and customer relationships, while using the approved receivables as collateral for working capital.
In most invoice finance structures:
Invoice finance suits companies that have:
Factoring is a receivables funding solution where the finance provider purchases invoices from the business and usually takes over responsibility for collections. The factor advances a portion of the invoice value immediately and receives payment directly from the customer.
In classic factoring arrangements:
Factoring is attractive where:
Both tools are built around unpaid invoices, but they operate differently in terms of control, visibility and responsibilities. The comparison below highlights the main distinctions.
| Feature | Invoice Finance | Factoring |
|---|---|---|
| Control of sales ledger | Business keeps control of credit control and collections. | Provider often manages collections and credit control. |
| Customer awareness | Customers may not be aware of the facility, depending on structure. | Customers are usually notified that invoices are assigned to the factor. |
| Administrative responsibility | Business handles statements, reminders and reconciliations. | Provider handles much of the administration and follow up. |
| Cost level | Generally lower fees, since collections remain in-house. | Fees typically higher due to bundled credit control services. |
| Best suited for | Companies with strong internal credit control and a wish to keep direct contact with customers. | Companies that want both cash and outsourced collections, or that lack internal credit control capacity. |
Invoice finance allows the business to retain direct communication with its customers. Invoices, reminders and payment negotiations are handled by in-house teams, which is important where relationships are strategic or sensitive. Customers continue to interact with the same people they know and trust.
Many invoice finance facilities work as revolving lines. As new invoices are issued to eligible customers, available funding rises. When invoices are paid, limits free up again. This flexibility suits businesses whose funding needs fluctuate with order volumes, contract milestones or seasonal patterns.
Because the provider does not typically manage collections or perform full credit control, invoice finance fees are often lower than those charged for factoring. The business pays primarily for the funding itself rather than for a combined service bundle.
Once a facility is in place and invoices are approved, drawdowns can be fast. Funds are advanced soon after eligible invoices are submitted, which helps management avoid emergency borrowing or stretched supplier payments when customers are slow to pay.
Factoring gives businesses access to both funding and professional collections. The factor monitors overdue accounts, issues reminders and often performs credit checks on customers. This relieves internal teams and can bring more discipline to receivables management.
As with invoice finance, factoring provides prompt access to cash tied up in receivables. This is especially valuable for companies that sell to a small number of large buyers whose payment policies are slow or inflexible.
When the factor manages statements, reconciliations and follow up, internal staff can focus more on operations, sales and delivery. The burden of chasing late payments and managing disputes is reduced or shared with the funding partner.
Businesses that are adding new customers and increasing invoice volumes may struggle to expand their credit control function at the same rate. Factoring can help them scale without immediately hiring a larger receivables team, while still maintaining pressure on collections.
There is no single correct answer. The right structure depends on how your company manages customer relationships, how strong your internal credit control is and how comfortable you are with a third party interacting directly with your clients.
Invoice finance is usually a better fit when:
Factoring often makes more sense when:
Some businesses adopt a blended approach. They may use invoice finance for core, strategic customers where they want full control, and factoring or spot factoring for certain debtor groups, sectors or regions where outsourced collections are helpful.
The market for invoice-based funding is fragmented. Providers differ in advance rates, pricing, eligibility criteria, notification requirements and how they treat disputes or dilutions. Off-the-shelf offers rarely reflect the specific mix of customers, contracts and seasonality in a given business.
Financely Group works with companies that want to treat receivables funding as part of a broader working capital strategy rather than a one-off quick fix. Through regulated partners, we:
The target outcome is a facility that delivers reliable liquidity, fits existing systems and does not create unexpected friction with key customers.
Delayed customer payments do not need to dictate your growth plans or force you into repeated emergency borrowing. With the right receivables funding structure, your sales ledger can become a predictable source of working capital instead of a constant source of uncertainty.
If your business is profitable yet always waiting on large unpaid invoices, invoice finance or factoring may be worth a detailed review. Financely Group can help you understand the trade-offs, shortlist lenders and move from general interest to a concrete offer.
Share your customer profile, typical payment terms and monthly invoice volumes with our team to explore invoice finance and factoring options through our regulated lender network.
Discuss Invoice-Based FundingDisclaimer: This page is for general information only and does not constitute legal, tax, accounting or investment advice. Financely Group acts as advisor and arranger through regulated partners and is not a bank or direct lender. Any invoice finance, factoring, receivables financing, supply chain finance or capital raising solution is subject to underwriting, KYC, AML, sanctions screening, legal review, documentation, perfected security and approvals by relevant stakeholders. No public offer or solicitation is made on this page.
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