The UK’s 6 best invoice factoring companies for small businesses
Invoice factoring solutions could make a huge difference to your small business's cash flow – but which one to pick? Read on to compare the best companies in the UK market for small business invoice factoring companies
Cash flow is a key priority for any small business owner – you need to make sure you’ve not only got enough money coming in to cover day-to-day expenses, but also any expansion plans.
However, late payments can throw a significant spanner in the works – companies paying you for goods or services can, perfectly legitimately, wait up to 30 days before paying what they owe.
Moreover, if they wait longer than this, there’s realistically not much you can do.
This is having a real impact on small businesses up and down the UK, with research from business bank Tide finding that UK SMEs are chasing a combined £50bn in late payments, and that the average UK SME is chasing five outstanding invoices at once.
Thankfully, invoice factoring can help. Basically, you can get access to the cash you’re owed within 24-48 hours and pay a small fee for the privilege.
However, there are a lot of invoice factoring companies out there and it can be tricky to find the right fit for your small business invoice factoring needs. If you need to free up some cash for operations, just provide us with a few details about your business and we'll connect you with top, trusted invoice factoring agencies.
Or, simply read on for more detailed insight into six of the best invoice factoring companies operating in the UK.
This guide will cover:
Small business invoice factoring
Invoice factoring companies let small businesses quickly access up to 95% of money tied up in unpaid invoices. They'll advance this money to your small business before collecting the invoices themselves. Once the invoice is paid, you'll receive the remaining balance minus the service charge.
The benefits of small business invoice factoring include:
- Improved cash flow
- Quick purchasing
- Rapid expansion
- Debt protection
- Cost-effective admin
- Cost-effective debt collection
- Peace of mind
Read our full article on the advantages and disadvantages of factoring for small business.
Best UK small business invoice factoring companies
The top invoice factoring companies for small businesses in the UK are:
- Optimum Finance – best for startup businesses
- GapCap – best for a speedy application process
- Touch Financial – best for a helping hand in your search
- Bibby Financial Services – best for global expertise
- Hitachi Capital UK – best for seeing if invoice finance is right for you
- Skipton Business Finance – best for a simple and clear fee structure
Optimum Finance
✅ SME specialist
✅ Bespoke solutions
✅ No minimum turnover
It may have only been founded in 2017, but Optimum Finance has already made some serious waves in the world of invoice finance, and it issued £60.9m of business funding in 2018.
The team behind Optimum boasts decades of business finance experience, and the lender explicitly bills itself as an SME specialist that offers bespoke solutions to a wide range of UK businesses.
One key selling point is that, unlike many lenders, Optimum Finance has no minimum turnover requirement, making it a great choice for startups that need extra funding.
It offers rapid access to up to 85% of the invoice amount, and, for an extra fee, can provide businesses with debtor protection.
This compensates Optimum clients in the event that their customers encounter financial difficulties and are unable to pay what they owe.
Invoice factoring customers also get access to E3, a real-time online system that means you can monitor your Optimum Finance account and sales ledger 24/7.
Unlike some lenders, Optimum Finance does not have a presence on a customer reviews website but it does have a rating of 4.6 on Google (albeit from 12 reviews). These reviews praise the company for being friendly, efficient and responsive.
GapCap
✅ No contract
✅ Speedy application process
If you want to use invoice finance occasionally rather than making a firm commitment, then GapCap could be the ideal solution.
Through what it calls selective invoice finance, GapCap allows companies to raise money on upcoming invoices on an ad hoc, contract-free basis, a refreshing change from the binding contracts required by some providers.
The lender offers an advance of up to 85% of the invoice value and prides itself on a speedy application process, with most clients receiving an offer within 24 hours of application.
The company assigns a dedicated account manager to each client and, perhaps as a result, scores very highly on customer service, with an average of 4.8 on Trustpilot.
This is based on 78 reviews and the dedication and professionalism of the GapCap team comes up again and again – with one reviewer noting that he has his account manager on WhatsApp, and he replies day and night.
One thing to note is that, to be eligible for selective invoice finance, companies must have six months of trading history, so it’s not available to very early-stage startups.
Touch Financial
✅ Excellent customer service
✅ Hands-on service
Unlike the other companies on this list, Touch Financial is not a lender. Instead, it’s a broker that specialises in invoice finance and other types of business funding.
It was founded in 2008 and, through the lenders on its platform, offers advance rates up to 100% and low rates from 0.1% (although this is obviously highly dependent on the circumstances of your business).
On the plus side, it has an excellent reputation for customer service, with a 4.9 rating on Feefo and a Feefo Platinum Trusted Service Award for 2020.
This is based on a total of 960 reviews – with 211 left in the last year – and reviewers praised Touch Financial for a quick and easy process.
However, it’s worth noting that, unlike Trustpilot, Feefo reviewers have to be invited to leave a review so the company being reviewed has more control over the process.
For businesses that need a bit of help comparing providers, Touch Financial is a great option – you’ll be matched with an experienced consultant that can explain the different quotes you receive and help you work out which is the right fit for your business.
Bibby Financial Services
✅ Over 35 years of funding experience
✅ Global coverage
✅ Provides funding to over 7,000 businesses
Bibby Financial Services is one of the big hitters in the world of invoice finance, with a great track record and strong industry expertise in a variety of areas.
They offer bespoke funding solutions, and advance up to 100% of the invoice value within 24 hours.
The discount fee (essentially the interest you are charged on the advanced invoice) is typically 1-3.5% of the invoice amount, while the service fee (the amount you are charged for the invoice factoring service) is between 0.5% and 3.2% of your company’s annual turnover.
Bibby really stands out thanks to its scale – it provides funding to over 7,000 businesses and has experience and insight in sectors including construction, recruitment, manufacturing, and wholesale.
It also has an unrivalled track record. The company was founded in 1982, and boasts that it has been funding its longest-standing client since 1989.
Having stayed in business for over three decades, it’s no surprise that Bibby has an excellent reputation when it comes to customer service.
It has an average rating of 4.7 on Trustpilot, and is praised for its professionalism and hands-on approach, with some reviewers discussing how they have used the company for over a decade.
Bibby offers its services with an unlimited duration on a rolling contract, gives customers access to a 24/7 online account service, and offers Bad Debt Protection, which – for an extra fee – means Bibby clients won’t be out of pocket if one of their payees encounters financial difficulties.
Given its dominant market position, Bibby can afford to be selective with its client list.
Businesses have to have an annual turnover of over £100,000 to be eligible, so smaller SMEs may need to look elsewhere for their business funding.
Hitachi Capital UK
✅ One-fee structure
✅ 6-month trial period
When looking at invoice factoring from Hitachi Capital UK, one thing immediately stands out.
They were named the Best Factoring and Invoice Discounting provider at the 2019 Business Moneyfacts awards, the UK’s largest business finance awards ceremony. So they must be doing something right.
They currently support over 800 SMEs and have 25 years experience of funding businesses.
Hitachi Capital UK advances up to 90% of the invoice value and offers two fee structures.
Their standard invoice factoring product operates on typical terms, with a service fee that is a percentage of company turnover, and a discount fee that is a percentage of the amount lent.
However, Hitachi also offers a product called Inspired Cashflow, a comprehensive invoice factoring solution that charges a simple fee of between 0.45% and 5% of the company’s annual turnover.
This means no hidden fees and no set up costs, and is a great option for any SME that is put off by the complicated fee structures of other providers.
Refreshingly, Hitachi is one of the few invoice factoring companies to offer a six-month trial period to see if invoice factoring is the right fit for your small business.
After this, you’ll be offered a rolling monthly contract, perfect for SMEs put off by lengthy contracts.
This provider also scores highly for customer service, with an average Feefo score of 4.3. However, there are only seven reviews left during the past year, and one of these criticises the lack of communication between different departments at the company.
Also remember the usual caveat with Feefo, customers can only leave a review if invited to do so, so the company being reviewed has more control over the process than with sites like Trustpilot.
In terms of eligibility, Hitachi states that its services are suitable for businesses with a minimum annual turnover of £50,000.
However, they also stress that they assess each business individually, and will consider startups, especially if they are homeowners.
Skipton Business Finance
✅ Dedicated relationship manager
✅ Variety of products
Skipton Business Finance was founded in 2001 but is part of Skipton Building Society, a financial institution that’s been going since 1853.
This, Skipton argues, gives it a different perspective, with the company stating that it’s “focussed on understanding its clients’ businesses and assisting in creating wealth and jobs in the regions, rather than purely for profit.”
They advance up to 90% of the invoice value, and give each client a dedicated relationship manager.
A wide variety of invoice finance options are available, including My White Label, a business solution that combines invoice finance with professional credit control in a completely confidential package that will leave your customers none the wiser.
Another interesting option is Skipton Select, which offers what Skipton calls interest-free invoice factoring.
Essentially, you simply pay a flat fee that’s a percentage of your annual turnover and Skipton is admirably up front about these, publishing the following table on its website.
Source: Skipton Business Finance
Skipton is also open to startup businesses. It lists no minimum turnover and has a specific section on its website that addresses Invoice Finance for a New Start Business.
Top UK invoice factoring companies: side-by-side comparison
| Supplier | Key Points | Advance Rate | Eligibility Restrictions |
|---|---|---|---|
| Optimum Finance | • SME specialist • Bespoke solutions • No minimum turnover | • Up to 85% of invoice value | • None |
| GapCap | • Flexible provider • No contract • Speedy application process | • Up to 85% of invoice value | • 6 months of trading history |
| Touch Financial | • Invoice finance broker • Excellent customer service • Hands-on assistance | • Up to 100% of invoice value | • Varies by lender |
| Bibby Financial Services | • Over 35 years of funding experience • Global coverage • Provides funding to over 7,000 businesses | • Up to 100% of invoice value | • Annual turnover over £100,000 |
| Hitachi Capital UK | • Award-winning provider • One-fee structure • 6-month trial period | • Up to 90% of invoice value | • Annual turnover over £50,000 (recommended) |
| Skipton Business Finance | • Clear online fees • Dedicated relationship manager • Variety of products | • Up to 90% of invoice value | • None |
As you can see, there’s a lot to consider when choosing the right invoice factoring company for your small business.
For some expert help, simply fill in the form at the top of the page to receive bespoke quotes from some of the UK’s top invoice factoring companies, all tailored to the specific needs of your business.
How do I know if my business is eligible to use an invoice factoring company?
Requirements vary between invoice finance companies but some common restrictions include:
- Your customers must be businesses and not consumers
- You often need an established trading history and/or detailed financial statements
- You should offer standard credit terms on your invoices, this usually means no longer than 90 days
- Some providers have a minimum turnover amount, or a minimum value of funded invoices
However, many providers assess businesses on a case-by-case basis, so don’t just assume you won’t be accepted.
The costs of using a small business invoice factoring company
For a fully comprehensive overview of how much using an invoice factoring company costs, see our in-depth guide to invoice factoring costs.
Essentially though, there are two main fees to be aware of: the discount fee and the service fee.
The discount fee
The best way to understand this is that it works in the same way as interest on a bank loan, and is charged on a weekly or monthly basis.
You pay a percentage of the invoice value – this is typically between 0.5% and 5%, but varies according to criteria including the value of the invoices being factored, the financial health of your business, the reliability of your clients, and the sector in which you operate.
You also need to understand the factoring period – the longer your customers take to pay their invoices, the higher the discount fee you are likely to be charged, so offering 30-day payment periods instead of 90 days can make a huge difference to the overall cost of factoring.
The best way to understand all this is with an example:
Let’s say you have an invoice worth £15,000
The discount rate for your chosen invoice factoring company is 3.5%
The payment term is 30 days
And the advance rate is 85%
First of all, the advance money comes in (often within 24 hours)
You get 85% of £15,000, so £12,750
Assuming that your customer pays within 30 days, you then pay a 3% charge on the value of the invoice
3% of £15,000 = £450
So, when your customer pays the invoice, you’ll receive the remainder of the invoice value minus the 3% discount fee
This is £2,250 – £450 = £1,800
So, the cost of invoice factoring is £450
The service fee
Thankfully, the service fee is much more straightforward.
As the name implies, this is the fee that the invoice factoring company charges for their services, and covers the costs they incur chasing invoices etc.
This is charged as a percentage of your annual turnover and, largely depending on the size of your turnover, can be as low as 0.1% or as high as 5%.
The size of this fee is also dependent on exactly which services are included, so make sure you double check the small print in the contract.
As a very quick example though, if your turnover was £50,000 and your service fee was 3%, you’d pay an annual service fee of £1,500.
There are a variety of other costs that may apply to certain providers – so it’s crucial to carefully check the contract, and question anything you don’t understand.
Invoice factoring companies: making the best choice for your business
There’s no doubt that finding the right invoice factoring solution can make a huge difference to your small business.
However, there’s more to picking the right provider than just choosing the one that provides the lowest fees.
Carefully consider the pros and cons of providers, including the quality of their general customer service, whether you’ll be assigned a dedicated account manager, their level of expertise in your sector, and whether they are used to the challenges associated with small business finance.
If you need invoice factoring for your construction or recruitment business, then make sure to check out our in-depth guides to construction finance and the best recruitment factoring companies.
It’s also vital to get a range of quotes from different providers so, to get started, simply fill out the form at the top of the page to receive bespoke invoice factoring offers, all tailored to the specific needs of your small business.
Invoice factoring company FAQs
Will my customer know I’m using a factoring company?
This depends on the invoice factoring company you choose, and your arrangement with them. Many providers do have a confidential invoice factoring product that keeps their involvement hidden.
However, this may come with higher fees than their standard offer. An invoice factoring company openly chasing your customers may also encourage them to pay quicker, so make sure you weigh up the pros and cons of confidential invoice factoring before making a decision.
Is invoice factoring available to startup businesses?
This depends on the requirements of the provider. Some have a minimum annual turnover but others assess each business on a case-by-case basis.
If your business is a startup without a trading history, you’ll need to pay high fees and may also have to put up an asset (such as your home) to secure invoice factoring funding.
Can invoice factoring companies also offer invoice discounting?
The majority of invoice factoring companies also offer invoice discounting. The key difference is that, with invoice discounting, the business receiving funding retains control of things like payment chasing and invoice processing.
Because of this, it’s much easier to hide the involvement of your invoice finance partner, but the extra work involved means invoice discounting is often better suited to larger businesses.
