Is it Possible to Change or Get Out of a Finance Factoring Contract?

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Is it Possible to Change or Get Out of a Finance Factoring Contract?

Updated: 25th November 2021

If you’ve entered into a factoring agreement, but are now regretting it or want to change some of the terms, you may be wondering whether you can amend or exit the contract altogether.

There are ways to change and terminate an invoice finance contract. Some will involve paying additional fees, but planning in advance will help to minimise any extra costs. So what should you do if you’re not happy with the existing arrangement?

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Check for amendment or termination conditions in your contract

Factoring contracts have a minimum term, plus a notice period for exit. These will determine what you need to do next, although you may be able to terminate it regardless of the terms if you pay a financial penalty.

Most contracts are detailed in their instructions for termination. There might be a specific procedure for giving notice, as well as a time frame, so make sure you check the small print carefully or ask a reliable finance broker to go through it with you.

Be clear about why you want to change or exit the agreement

Do you have issues with the amount of money being released? Maybe the charges are too high, or you simply feel that another finance product would be better suited to how you operate.

Invoice finance as a whole is flexible, and offers many variations within each product. If you’ve chosen factoring instead of invoice discounting, you may decide that it’s preferable to handle your own credit control, or keep the arrangement confidential from new customers.

Solutions if you’re not happy with invoice factoring

Invoice discounting as an alternative

Discounting your invoices would allow you to control your own sales ledger, and some businesses choose this to maintain good customer relationships.

As we said earlier though, if it’s just confidentiality that’s the problem, invoice factoring does offer a confidential option whereby payments are chased in your company name. Your customers will be unaware that a factoring agreement is in place.

Monies are collected by the lender and placed into a ‘trust’ account under their control but in your business name. You’ll pay a little more for this type of arrangement, but it will be easier than migrating to invoice discounting.

Are costs too high?

Your lender may be willing to negotiate on costs in order to retain the business, or alter the terms slightly to reduce ongoing fees. You could also obtain quotes from other factoring companies, and carefully compare them to your existing arrangement.

With so many factoring providers looking for new business, it’s a competitive market, so this could work in your favour. You also need to calculate the total cost of changing company over the whole term of a contract, however, which is where a broker could help with the figures.

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If product migration is the only solution

Planning is key when you’re changing from invoice factoring to discounting. You’ll need to plan ahead for the gap in funding, and try to minimise the adverse effect on your cash position.

So what will you need to consider?

  • Credit control: taking on extra staff to deal with payment collection if you can’t do it yourself
  • Timing: which part of the month is the best time to make the change?
  • Arranging new finance: will you stay with invoice finance or choose an alternative source? Either way, there will be a funding gap to bridge, and you’ll need to arrange this carefully to avoid a sudden drop in available working capital
  • Giving notice on your factoring contract: only when everything else is in place should you finally give notice to your existing lender.

Naturally, moving between products with the same lender will be easier than changing providers. Depending on your motives for change or exit, it’s worth challenging all proposed and existing costs to get the best result.

If you’re unsure whether to terminate or change a factoring finance contract, Real Business Rescue can help. With vast industry knowledge and links with lenders throughout the UK, our advisors provide unbiased, independent guidance on the best way forward.

Keith Tully


0800 644 6080
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