What is a typical UK factoring rate in 2026?

UK factoring is typically priced at 2–4% above the Bank of England base rate, depending on debtor quality, term and turnover, with a separate service fee of around 0.5–2% of invoice value. By comparison, a business overdraft in the UK from Barclays, NatWest, HSBC or Lloyds usually sits between 8% and 15% APR, with an arrangement fee on top, making factoring materially cheaper for funding the receivables cycle.

Factoring vs business overdraft · SME comparison

Q: What is the main difference between factoring and a business overdraft?

Invoice factoring means assigning your invoices to a factor (a bank or specialist provider such as Bibby Financial Services, Aldermore, MarketFinance or Skipton Business Finance) who advances the cash. A business overdraft is a generic credit line linked to your current account at Barclays, NatWest, HSBC or Lloyds. Factoring tends to be 50–70% cheaper in effective cost, generally does not require personal guarantees, and with non-recourse factoring the customer default risk is transferred to the factor.

Compare funding costs

Enter the details of your transaction to see the exact cost of each option and your potential saving.

Invoice value (£)

Term (days)

Factoring rate (% p.a.)

Overdraft APR (%)

Factoring

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Business overdraft

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Saving with factoring

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Factoring vs business overdraft — full comparison

Beyond pure cost, there are structural differences between the two products that should drive your decision. UK overdrafts from Barclays, NatWest, HSBC and Lloyds typically carry an arrangement fee, a renewal fee and a higher headline rate than the all-in cost of factoring from specialist providers such as Bibby Financial Services, Aldermore, MarketFinance or Skipton Business Finance.

Criterion	Factoring	Overdraft
Typical effective rate	2–4% above BoE base	8%–15% APR + fees
Personal guarantees	Generally not required	Standard for SMEs
Default risk	Transferred (non-recourse)	Stays with the business
Balance-sheet impact	Off-balance-sheet (non-recourse)	Increases liabilities
Limit grows with sales	Yes, automatically	Requires renegotiation
Approval time	24–48 hours (digital)	1–4 weeks
Credit control	Included (with the factor)	Not included

When factoring is the right choice

Factoring is not suitable for every situation, but there are a number of scenarios in which it clearly outperforms a bank overdraft.

Growing business

Your factoring limit scales in line with sales. An overdraft has a fixed ceiling that needs renegotiating with the bank.

Large or public-sector customers

Invoices on strong covenants (the public sector, multinationals) attract lower rates because the risk sits with your customer, not with you.

Protection against bad debts

With non-recourse factoring, if your customer goes insolvent it is the factor that takes the loss, not your business.

One-off, urgent need

Have a large invoice on 90-day terms and need the cash now? Factoring is funded within 24–48 hours, with no branch meetings.

Recourse vs non-recourse factoring

There are two main types of factoring, with different implications for risk and cost:

Recourse factoring

If your customer (the debtor) fails to pay, the default risk reverts to your business. It is cheaper (lower fee) because the factor takes on less risk. The invoice remains as an asset on your balance sheet.

Non-recourse factoring

The factor fully assumes the customer default risk. If your customer becomes insolvent, your business does not repay the advance. The invoice comes off the balance sheet (off-balance-sheet treatment), improving financial ratios. The fee is slightly higher but includes credit insurance.

Advanta offers both structures, with automatic risk profiling of each debtor to recommend the most advantageous option.

Frequently asked questions

What is the main difference between factoring and a business overdraft? ▾

Invoice factoring means assigning specific invoices to a factor (e.g. Bibby Financial Services, Aldermore, MarketFinance) who advances the cash. A business overdraft from Barclays, NatWest, HSBC or Lloyds is a generic credit line linked to your current account: it can be used for any purpose, but is much more expensive and increases the company's liabilities. Factoring is directly tied to the receivables cycle and is therefore the right product for funding working capital.

Does factoring appear on the company balance sheet? ▾

It depends on the structure. With non-recourse factoring, the assigned invoices come off the asset side (trade receivables) without creating a matching liability — it is off-balance-sheet treatment, which improves your gearing ratio. With recourse factoring, the invoices remain as assets until settled. A business overdraft, by contrast, always sits on the balance sheet as a current liability, worsening solvency indicators.

Can I use factoring even if I already have an overdraft? ▾

Yes. Many companies use both in parallel — factoring for funding specific receivables (cheaper) and the overdraft as a buffer for ad-hoc needs not linked to invoices. The optimal strategy is to maximise factoring to bring down the blended cost of funding and keep the overdraft as an emergency reserve, minimising total interest paid to the bank.

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