Factoring is a form of asset-based finance in which a business sells its trade receivables — unpaid invoices — to a specialist company called a factor, in exchange for an immediate advance of a proportion of the invoice value. The factor then collects the debt directly from the customer and pays the remaining balance (less fees) once the invoice is settled.
How factoring differs from invoice discounting
With factoring, the factor typically manages the sales ledger and chases customers on behalf of the business. This is sometimes called disclosed factoring because the customer is aware that a third party is involved. Invoice discounting, by contrast, is usually confidential — the business retains control of credit control and the customer never knows about the finance arrangement. Factoring is therefore more hands-on for the provider and usually suited to smaller businesses without a dedicated credit-control function.
Recourse and non-recourse factoring
If the arrangement is with recourse, the business must buy back any invoice that the customer fails to pay. Non-recourse factoring transfers the bad-debt risk to the factor, but typically comes at a higher fee. Understanding which type applies matters when assessing the true cost and risk of a factoring facility.
Factoring versus Credicorp products
Factoring is invoice-led, so it works best when a business has a sizeable trade-debtor book with creditworthy customers. Credicorp's Business Loan and Credicorp Flex are alternative routes to working capital that do not depend on invoice volumes — they advance funds against the overall creditworthiness of the company rather than individual invoices.
We lend only to UK limited companies and LLPs, and the loan is to the company with no director personal guarantee. As business finance outside the consumer-credit regime, it is not covered by the Financial Ombudsman Service or FSCS.
See also: What is working capital and why does it matter?, What are debtor days and how do you calculate them?.