NEW YORK, December 30, 2025, 11:32 ET
- Lloyds Banking Group plans to close its invoice factoring service for SMEs by the end of 2025, reports say.
- NatWest and Barclays have already stepped back from factoring, while HSBC has tightened eligibility, according to reports.
- Small firms use factoring to smooth cash flow when customers pay late, making the timing sensitive at year-end.
Lloyds Banking Group (LLOY.L) plans to close its invoice factoring service for small and medium-sized businesses by the end of 2025, the Financial Times reported, citing two people familiar with the matter.
The timing matters because factoring is a day-to-day cash tool for smaller firms, letting them turn unpaid invoices into money they can use immediately. A year-end shutdown would force some businesses to line up alternatives for 2026.
The move also signals a wider retreat by major UK lenders from labour-intensive working-capital products, as banks focus on steadier returns from mortgages and larger corporate customers.
Invoice factoring is a form of invoice finance in which a lender buys a company’s outstanding invoices at a discount and then collects the payments from customers. It can help businesses bridge gaps caused by late payments without taking out a traditional loan.
Lloyds declined to comment when approached by the FT, the newspaper reported. A person close to the bank told the FT the factoring division was modest in size and used by less than 1% of Lloyds’ SME customers, adding that the bank would continue offering similar services to limit disruption.
Other large lenders have already tightened or exited the market. NatWest closed its factoring unit in 2021 after it had fewer than 1,000 customers, a person close to the bank said, while Barclays continues to offer other invoice-finance options, the FT reported. HSBC has restricted factoring to customers with more than £1 million in annual turnover, the report added.
Nathaniel Southworth, managing director of North Yorkshire-based toy distributor KAP Toys, said stricter revenue and profit hurdles can shut smaller firms out. “The mindset of traditional banks is that they would like a company’s finances to be nice, uniform and easily predictable,” he said. 1
The Sun reported on Monday that the Lloyds service would not be offered next year, describing the decision as another blow for smaller firms already facing tighter margins. 2
Industry sources cited by the FT said factoring can be difficult to run profitably because it requires monitoring invoices and managing collections, while smaller clients typically buy fewer additional products from banks.
The report also pointed to rising costs for small firms, including higher wage bills and taxes, while late customer payments remain a persistent strain on cash flow. Working capital — the money a business needs to fund day-to-day operations — can tighten quickly when invoices go unpaid.
Reuters reported on Sunday that it could not immediately verify the FT report, and the reason for the reported closure was not disclosed. 3
Lloyds is Britain’s biggest mortgage lender, and the reported move underscores the tension between banks’ public pledges to support small businesses and the economics of specialist finance. For companies that rely on invoice factoring, the coming weeks may be about securing replacement facilities before year-end.
