01 / The mechanics
How it works
- You raise an invoice as normal and submit it to the funder.
- A portion of its value is advanced quickly, with the balance released when your customer settles, less fees.
- Under factoring the funder collects from your customer directly; under discounting you keep collecting.
- With recourse, an unpaid invoice comes back to you and you repay the advance.
02 / The trade-offs
Who it usually suits
Businesses that invoice other businesses on payment terms.
Where the cost sits
A discount charge for the time the money is out, plus a service fee on turnover. Minimum-fee clauses are common.
03 / Look closely
What to watch for
Recourse — whether you repay when a customer does not — and whether your customers are told.
Questions worth asking
- Is this with or without recourse, and how long before an invoice is recoursed?
- Will my customers know, and who chases them?
- Is there a minimum fee regardless of how much I use?
- How long is the contract, and what notice ends it?
04 / Take a step back
Before you commit
If one slow customer is the whole problem, tightening terms with that customer is cheaper than financing the whole ledger.