Invoice Factoring for Freelancers: Is It Worth It?
Invoice factoring sounds great in theory: sell your unpaid invoices to a factoring company and get paid immediately. But at 2–5% per invoice, the costs add up fast. Before you factor, it's worth understanding exactly what it costs — and what the cheaper alternatives are.
TL;DR:
- Invoice factoring = sell unpaid invoices to get cash now (2–5% fee)
- It's useful for large B2B invoices that are very late
- For most freelancers, automated chasing is cheaper and gets the same result
- Factor as a last resort — not a first response
What is invoice factoring?
Invoice factoring (also called accounts receivable factoring) is when you sell an unpaid invoice to a third-party company — the "factor" — at a discount. The factor pays you immediately, then collects from your client directly.
Example: You have a £5,000 invoice 60 days overdue. A factoring company pays you £4,750 (95%) today. They collect the full £5,000 from your client and keep £250 as their fee (the "factor rate" or "discount rate").
How invoice factoring works
How much does invoice factoring cost?
| Invoice value | Factor rate (3%) | You receive |
|---|---|---|
| £1,000 | £30 | £970 |
| £2,500 | £75 | £2,425 |
| £5,000 | £150 | £4,850 |
| £10,000 | £300 | £9,700 |
| £25,000 | £750 | £24,250 |
Additional fees often apply: origination fees (£100–500), monthly minimums, recourse fees if the client doesn't pay. Real effective rates can be 5–10% annually.
✓ When factoring makes sense
- Large invoice (£5,000+) from a slow-paying corporate client
- Invoice is 90+ days overdue with no response
- You need cash immediately for a specific purpose
- You've exhausted all chasing options
- Your client is a reliable payer (just slow)
✗ When factoring doesn't make sense
- Small invoices (under £1,000) — fees make it uneconomical
- Invoice is less than 30 days overdue
- You haven't followed up properly yet
- Client relationship is fragile — factoring sends a hard signal
- You have a pattern of late invoices (address the root cause)
The cheaper alternative: automated chasing
Most freelancers who consider factoring haven't yet tried systematic escalation. They've sent one reminder email, waited too long, and assumed the client isn't going to pay.
In reality, the majority of late invoices are paid within 30 days of a consistent escalating follow-up sequence — not because the client suddenly has cash, but because they feel the appropriate pressure to prioritise your invoice.
Cost comparison for a £2,500 invoice:
Automated chasing with Chaser costs less than a single cup of coffee to cover 3 invoices — or £12/mo for unlimited. Invoice factoring costs 3–5% of the invoice value every single time.
The right order of escalation
Try step 1 before you reach step 5
Chaser sends escalating follow-ups automatically. Most invoices are paid before you even need to think about factoring.
Try Chaser free — 3 invoices →