What is factoring

Factoring is also known as debt factoring or invoice factoring. It is a type of financing where businesses convert unpaid invoices into immediate cash by selling them to a factoring company. Also known as invoice factoring, it helps businesses improve cash flow without waiting for customers to pay. In most cases, you receive a large portion of the invoice amount—often within 24 hours—directly into your bank account. That means you can keep your business running smoothly without delays.

This process is often referred to as accounts receivable factoring: you deliver a product or service, issue an invoice to your customer, and assign that invoice to a factoring company. They advance you a percentage of the invoice and collect the payment from your customer later. There are various types of factoring available, including recourse, non-recourse, and spot factoring, depending on how much risk you’re willing to transfer and how much control you want to retain over client communication.

Factoring is widely used by small businesses, start-ups, and growing companies across industries such as logistics, healthcare, manufacturing, and construction—particularly when managing extended payment terms.

Table of contents

• Pros and cons of factoring
• Factoring for freelancers and sole traders
• Factoring for small businesses
• How much does factoring cost?
• What Payt can do for you

Pros and cons of factoring

Pros

• Receive payments more quickly and enhance cash flow
• Eliminate the stress of chasing late or unpaid invoices
• More time to focus on your core business
• Easier to invest and scale without relying on loans
• Reduces dependency on traditional financing methods

Cons

• Fees can accumulate, especially with high invoice volumes
• You may relinquish some control over customer interactions and collections
• Not all clients or invoices may be eligible

Factoring is a robust option, but it’s essential to compare it with alternatives like small business loans or automated credit management software. The best solution depends on your financial goals, appetite for risk, and desire for control.

Factoring for freelancers and sole traders

If you’re a freelancer or sole trader, you understand how vital cash flow is. A delayed payment can impact everything—from personal outgoings to reinvesting in your business. With factoring, you don’t have to wait 30, 60, or even 90 days for clients to pay. Instead, you get paid promptly.

This allows you to plan ahead, invest in tools or marketing, and operate with peace of mind. For those lacking time or experience in credit management, factoring alleviates the burden of collections. Some providers even assume the risk of non-payment, particularly with non-recourse factoring.

That said, factoring incurs costs. If you’re seeking a more cost-effective solution that ensures faster payments while retaining control, Payt may be the smarter alternative.

Factoring for small businesses

Small businesses often operate on tight margins. Waiting on payments from larger clients can disrupt operations or hinder growth. Small business factoring bridges that gap by providing immediate cash, enabling you to reinvest in stock, hire staff, or handle seasonal demand.

In rapidly growing companies, factoring offers the flexibility to move fast. Additionally, many factoring companies offer online platforms for submitting invoices, tracking payments, and monitoring cash flow. However, outsourcing collections may mean reduced oversight of client relationships.

This is where Payt stands out. You benefit from faster payments while maintaining full control over your customer interactions and brand experience.

How much does factoring cost?

Factoring costs typically include a percentage-based fee (usually between 1% and 5% of the invoice amount) and sometimes a fixed fee per invoice. Rates vary depending on your industry, invoice volume, client creditworthiness, and payment terms. The longer your customers take to pay, or the riskier the invoice, the higher the fee.

What does factoring cost with Payt?

Unlike traditional factoring services that charge a percentage of every invoice, Payt’s pricing is straightforward, transparent, and driven by automation—not your revenue. Instead of selling your invoices, you retain full control—and we help you manage them more intelligently. Our software automates the entire credit management process, from sending invoices and reminders to tracking payments.

On average, businesses using Payt get paid 30% faster and save up to 80% of the time typically spent on admin. All this without involving a third party. That means lower costs, greater control, and stronger client relationships.

What Payt can do for you

At Payt, we believe faster payments shouldn’t come at the expense of control. That’s why we’ve developed software that automates your entire credit management process—without transferring your invoices to a third party.

With Payt:

• Automate invoice sending, reminders, and payment follow-ups
• Choose how you follow up—via email, text message, or even post
• Let your customers pay instantly via payment link or QR code
• Get real-time insights into who has paid, when, and how much
• Seamlessly integrate Payt with your existing accounting software

By using Payt, you save up to 80% of your admin time, get paid 30% faster, and keep full control over your communications and cash flow. It’s everything factoring offers—without surrendering your grip on the process.

Schedule a free demo and discover how our software makes your credit management smarter, faster, and more personal. See for yourself how you can gain greater control over your invoices and get paid more quickly.