Invoice factoring vs chasing late payments
Clients paying late leaves a gap in your cash flow. Many owners look at invoice financing to fill it. Here's how it works, what it costs, and when chasing your invoices properly is the cheaper fix.
What is invoice financing?
A lender pays you most of an invoice's value up front, usually around 80–90%, then pays the rest, minus its fees, when your client pays. It's a way to borrow against money you're already owed.
Factoring vs discounting
With invoice factoring, the lender takes over collecting the money, so your clients know you're using it. With invoice discounting, you keep chasing your own clients and it's usually confidential. It tends to suit bigger businesses with steady turnover.
What does it cost?
Costs vary by provider, so always ask for a full quote. Most charge a service fee (often a percentage of turnover or of each invoice) plus a discount charge, which works like interest on the money advanced. Some add set-up fees, minimum terms or exit fees. Check whether it's 'recourse' (you repay if your client doesn't pay) or 'non-recourse' (the lender takes that risk, at a higher price).
When financing makes sense
If your clients pay on time but your terms are long (say 60–90 days) and you need cash sooner to grow, financing can help. You're paying to get money early, not to fix a payment problem.
When chasing is the better fix
If invoices are going late because nobody's chasing them, financing just means paying fees on money you'd get anyway with a few reminders. Most late invoices are forgotten, not disputed. A reminder before the due date, a polite nudge the day after, then firmer follow-ups usually bring the money in, with no lender involved.
You can charge for paying late
On business-to-business invoices in the UK, the Late Payment of Commercial Debts (Interest) Act 1998 lets you add interest at 8% above the Bank of England base rate, plus a fixed fee of £40, £70 or £100 depending on the debt. So late payers can cover your costs, rather than you paying a lender.
Let Paid do the chasing
Paid sends polite, then firmer reminders for you, adds legal interest when you want it, and gives clients a simple "View & pay" page. Free for your first 3 invoices.
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