What Is Factoring and how does it work?

It’s an exciting form of finance for growing companies, but how does it work?

It’s easy for business owners to get carried away with securing the next big order. But how to pay for it?  Especially if you don’t get paid until you deliver or still waiting to be paid from your last job.

Fundamentally, it’s a flexible loan, which advances money to a company as it issues invoices.  Differing from an overdraft or loan, which are usually for a fixed amount.  The amount borrowed grows with sales.



The greatest advantage to debt factoring is its ability to improve cash flow, as it allows businesses to instantly release the cash value of their invoices. This means that they can instantly use the cash to operate and reinvest in the business.

It’s incredibly important for a business to have good cash flow, as it is key to day-to-day operation and growth. It also increases finance for trade, often allowing the company to take on more work since they have access to the necessary funds to complete more jobs.

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The administration and resources needed to manage and chase up invoices can be expensive, so debt factoring can also free up time to use elsewhere in the business. This leads to greater overall efficiency and ensures that every resource is being used wisely.


Ultimately, debt factoring can lead to accelerated growth, which can see businesses expand rapidly (provided they reinvest the factor’s money wisely). A growing business is a healthy business, and it is likely that those using debt factoring will have a decent level of finance for their trade and operations. Once growth has really begun to take hold, it is likely that debt factoring will be needed less and less as the business builds up its own funds and takes on more work.

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If you are a business owner looking for more information on our finance facilities, we’d love to be able to help. Why not give Regency a ring today on 0161 280 4010, drop us an email at lynnew@regencyfactors.com or browse our website for more details on how our facilities work