Factoring can be worth it when your temp clients pay reliably but slowly and you need cash to cover payroll every week. It turns invoices into cash within days, but you pay a service fee on your turnover plus a charge on the money you draw that grows with every extra day your clients take. It also doesn't fix slow chasing, payment matching or invoices outside the facility, so it's worth knowing which of those is causing your gap before you sign.
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The short version
- Factoring advances up to about 90% of an invoice and usually takes over collections.
- Broker data puts service fees at 0.8% to 3.0% of turnover, plus a discount charge on money drawn.
- The discount charge grows with every extra day your clients take to pay.
- Bad debt under recourse, invoices outside the facility and payment matching stay with you.
- Adfin doesn't lend or advance cash; it collects payments, chases and matches them to invoices.
What factoring changes for a temp agency
You pay your temps every week. Your clients pay your invoices 30, 45 or 60 days later, and some larger hirers ask for even longer. The REC has said that hirers have demanded terms of up to 120 days from suppliers of agency workers. Every week you add a new payroll to the gap.
Factoring moves the cash forward. You assign your invoices to a finance provider, which advances up to about 90% of their value, though some providers advertise up to 100%. The provider usually runs your sales ledger and collects from your clients, then pays you the balance, minus its charges, when each client settles. Invoice discounting works in a similar way, but you keep collecting from clients yourself.
So the first decision is whether your problem is timing or something else. If your clients pay on time but on long terms, and payroll is the strain, factoring is designed for that. If your clients pay late because nobody's chasing them, factoring covers the cost of that delay without shrinking it.
What it costs, and why long client terms make it dearer
Recruitment funders don't publish exact rates, so the best guide is broker data. Spark Finance's rate index puts standard service fees at 0.8% to 1.8% of turnover, rising to 1.8% to 3.0% for smaller or specialist businesses. On top of that sits a discount charge on the money you draw, quoted at SONIA plus 2.5% to 4.5% a year for standard facilities.
Say your agency invoices £40,000 a month in temp work. A service fee of 1.8% to 3.0%, the range a small agency might be offered, would be £720 to £1,200 a month before any discount charge. That discount charge is interest on the advance for as long as it's outstanding, so a client who moves from 30 days to 60 roughly doubles the discount charge on their invoices.
Those are the running costs. Agreements usually also have a minimum period and a notice period, and ending early can trigger a termination payment, so it's worth knowing how long you're committing to before the first invoice goes across.
What factoring leaves with you
Factoring advances cash against invoices. It doesn't change the rest of your billing, and several jobs stay with you.
- Bad debt: you're usually still liable if a client doesn't pay (a recourse facility).
- Invoices outside the facility: anything the funder doesn't take on still needs invoicing, chasing and matching.
- The client relationship: with factoring, your clients deal with the provider over payment. Some agencies are comfortable with that; others would rather keep that contact themselves.
- Matching payments: anything you collect yourself still has to be matched to the right invoice.
Adfin doesn't lend, advance cash or buy invoices. It collects payments and chases them, which is the part factoring leaves alone. For weekly temp clients, you can collect by direct debit under one mandate, with each collection using the amount and due date of that week's invoice, so a timesheet that varies doesn't need a new mandate. Clients who pay by transfer each see unique bank details in your business's name, so payments match to invoices and are marked paid in Xero or QuickBooks automatically. Its AI Customer Agents can chase the invoices that do go overdue, within rules you set.
Questions to answer before you sign
It helps to look at your aged debt first. If most overdue invoices sit with clients who pay once someone reminds them, the gap is partly a chasing problem, and you'd be paying a funder every month to cover it. If your clients pay on the day their terms say, but those terms are 60 days and you pay temps weekly, finance may be the realistic way to grow.
A few questions tend to decide it:
- How much of your monthly gap comes from clients paying late, and how much from long agreed terms?
- Could your weekly repeat clients move to direct debit, or to shorter terms, as part of their next contract renewal?
- Is the facility recourse, and what would one client failing cost you?
- What's the minimum period, the notice period, and any early termination payment?
- Will the facility take every invoice you raise, including perm fees, or only some?
Some agencies use finance to bridge a large new contract and step down once collections are tighter, while others keep a facility running for years. Knowing what it costs you per extra day of client terms makes that choice easier.
Common questions
How much does invoice factoring cost a recruitment agency? Recruitment funders don't publish exact rates. Broker data puts service fees at 0.8% to 3.0% of turnover plus a discount charge of SONIA plus 2.5% to 4.5% a year or more.
What's the difference between factoring and invoice discounting? With factoring, the provider usually runs your sales ledger and collects from clients. With invoice discounting, you keep collecting yourself.
Can I factor perm placement fees as well as temp invoices? Some funders do fund perm invoices. Check what your facility covers before assuming it includes them.
Is invoice finance regulated by the FCA? Invoice finance for limited companies generally sits outside FCA regulation, as most business lending does.
What happens if a client doesn't pay a factored invoice? You're usually liable for it, under what's called a recourse facility. Check who carries that risk before you sign.
Does Adfin offer invoice factoring or cash advances? No. Adfin collects payments, chases overdue invoices and matches payments in Xero or QuickBooks; it doesn't lend.
Sources
- British Business Bank - Invoice finance (accurate as of October 2026) https://www.british-business-bank.co.uk/start-your-journey/finance-finder/invoice-finance
- Spark Finance - UK Invoice Finance Rate Index (accurate as of October 2026) https://www.sparkfinance.co.uk/data/uk-invoice-finance-rate-index
- REC - REC responds to new package on late payments (accurate as of October 2026) https://rec.uk.com/our-view/news/press-releases/rec-responds-new-package-late-payments
- Adfin - Getting started with direct debits (accurate as of October 2026) https://support.adfin.com/en/articles/10192945-getting-started-with-direct-debits
