When you factor an invoice, the factoring company takes over credit control. It chases payment from your customers on your behalf, sending statements, making calls, and managing collection through to settlement.
We rate this as the defining operational difference between factoring and invoice discounting, and it shapes how factoring affects your customer relationships. That’s the trade-off: you hand over the customer conversation.
What the Factor Does
Once an invoice is assigned to the factor:
Ledger management
The factor maintains a record of every invoice assigned to the facility. It tracks due dates, flags overdue accounts, and allocates payments as they land.
Customer statements
Statements go to your debtors showing outstanding balances and due dates. They carry the factor’s name, or sometimes yours, via a disclosed trust account arrangement.
Payment chasing
When an invoice goes overdue, the factor contacts your customer. Reminders come first, then phone calls for persistently late accounts. The collection style is the factor’s own, and it may not match how you would have handled the relationship. That’s the part worth checking before you sign.
Query handling
When a customer disputes an invoice or raises a query, the factor flags it back to you to resolve. The factor can’t settle a commercial dispute; only you can. Unresolved disputes hold up payment and shrink your usable facility.
Legal escalation
For seriously overdue accounts, the factor may recommend or initiate legal proceedings. The specific terms of this depend on the facility agreement. Under recourse factoring, if the debt stays unrecovered after a defined period, commonly 90 to 120 days past the due date, it is charged back to you.
Disclosure and the Customer Relationship
Factoring is disclosed: your customer knows a third party is managing the account, and the factor’s name appears on correspondence. We’d say this is the single point most businesses weigh when choosing between factoring and discounting. When the factor’s tone is more formal than your own, a long-standing customer can feel the change.
The practical impact varies:
- Most SME customers are comfortable dealing with a factor, the arrangement is common and well understood in trade finance contexts.
- Larger corporate buyers occasionally have policies against paying third parties rather than direct suppliers. This is worth checking for key customer relationships before entering a factoring facility.
- Relationship-sensitive customers, where the business has a strong personal relationship, may find the change in contact experience disruptive, particularly if the factor’s collection style is more formal or aggressive than the business’s own approach.
Businesses for whom this matters should either negotiate the factor’s communication approach upfront, or consider a confidential invoice discounting facility instead.
The CHOCCS Arrangement
Some factoring facilities operate under a CHOCCS structure (Client Handles Own Credit Control of Sales). The factor provides the finance but the business retains credit control. This is sometimes called a “self-billing” or “disclosed but managed” arrangement.
This is a hybrid: you get the funding of factoring but keep your own collections, much like discounting. When an owner wants the cash advance without losing the customer relationship, CHOCCS is the structure to ask about. It is still offered by some factors, though it is less common than full-service factoring, so confirm whether your provider supports it.
Why Factoring Credit Control Helps Some Businesses
We’d push back on the idea that the credit control service is a concession or a limitation. For the right business, it is genuinely useful:
- Small businesses with no accounts resource: many growing businesses have no dedicated credit control function and chase payment inconsistently. A professional factor will collect faster and more reliably.
- Businesses with high invoice volumes: managing 50+ active debtor accounts is time-consuming. Outsourcing this removes significant administrative overhead.
- Businesses in sectors with chronic late payment: manufacturing, construction, and wholesale often face persistent slow payment from trade customers. A factor’s systematic approach to collections can reduce average debtor days.
The service charge on a factoring facility, typically 0.5% to 3% of turnover and charged separately from the discount (interest) on funds drawn, partly reflects the cost of this function. Weigh the credit control value against the extra cost over discounting before you sign. If you already chase well, you may be paying for a service you don’t need.
What to Understand Before Signing
- What is the factor’s collection process, at what point do they escalate from written reminders to phone contact to legal referral?
- How are customer queries handled, who responds, and how quickly?
- Is the factor’s communication style consistent with how the business manages customer relationships?
- What happens to disputed invoices, are they excluded from the advance?
- What are the chargeback terms, how many days overdue before a recourse invoice is charged back?
Related Pages
- Invoice Factoring
- Invoice Discounting
- Recourse vs Non-Recourse Invoice Finance
- Invoice Factoring vs Invoice Discounting
- Invoice Finance Fees Comparison