Invoice Finance
Invoice finance, explained properly.
Invoice finance lets eligible businesses draw on the value of unpaid customer invoices instead of waiting for payment terms to run their course. It comes in several forms. We help you understand which, if any, fits your business.
What it is
When you invoice a customer on 30, 60 or 90-day terms, you have done the work but the money sits in your sales ledger until they pay. Invoice finance closes that gap. A finance provider advances a proportion of the invoice value soon after it is raised, then releases the balance, less their charges, once the customer settles.
Because the facility is secured against the invoices themselves, the amount available tends to rise and fall with your sales. That is why it is often described as funding that grows with the business, rather than a fixed loan that has to be renegotiated as you expand.
The term covers a family of products. The two most common are invoice factoring, where the provider typically manages collections, and invoice discounting, where you keep control of your ledger. Selective facilities allow you to fund individual invoices rather than the whole book.
How it works
- You raise invoices as normal
You deliver goods or services and invoice your customer on your usual credit terms.
- The provider advances a proportion
An agreed percentage of the invoice value is made available to you, usually within a short period of the invoice being submitted.
- Your customer pays
Depending on the facility, either you or the provider collects payment when the invoice falls due.
- The balance is released
The remaining value is passed to you, less the provider's fees and any interest charged on the advance.
Who it tends to suit
- Businesses selling to other businesses on credit terms
- Companies growing faster than their cash flow can comfortably support
- Firms with a small number of large customers and lumpy receipts
- Businesses with seasonal peaks that strain working capital
- Companies already using invoice finance that want a better-fitting facility
Advantages and considerations
Funding tied to what you have already earned
The facility reflects your sales ledger, so availability tends to grow as turnover grows rather than being capped at a fixed amount.
Quicker access to cash tied up in invoices
Rather than waiting for payment terms to expire, a substantial part of the invoice value can usually be drawn far sooner.
Flexible structures
Facilities can be shaped around whether you want collections support, confidentiality, bad debt protection or the ability to pick which invoices to fund.
Can work alongside other funding
Invoice finance is often used together with asset finance, overdrafts or term loans as part of a broader working capital arrangement.
It is not free money
Providers charge a service fee and a discount charge on the funds advanced. The overall cost depends on your turnover, debtor quality and the structure chosen, and should be weighed against the value of having the cash sooner.
Not every invoice is fundable
Providers typically fund invoices for completed work or delivered goods, owed by creditworthy business customers. Stage payments, consumer sales and disputed invoices may fall outside the facility.
Contract terms matter
Notice periods, minimum fees, concentration limits and personal guarantees vary between providers. Understanding these before signing is a large part of what we help with.
Typical eligibility
- You invoice other businesses (or public sector bodies) rather than consumers
- Invoices are raised for completed work or delivered goods
- Your customers have a reasonable payment record
- Your sales ledger is reasonably well maintained
Providers set their own criteria. These are the indicators most commonly looked for, not a guarantee of availability.
Factoring or discounting?
| Factoring | Invoice discounting | |
|---|---|---|
| Who collects payment | The provider's credit control team | Your own team |
| Customer awareness | Usually disclosed | Often confidential, subject to provider criteria |
| Control of customer relationships | Shared with the provider | Retained by your business |
| Demands on your systems | Lower | Higher: accurate ledger and reporting expected |
| Service fee | Generally higher, reflecting the collections service | Generally lower |
| Often suits | Smaller or growing firms, lean back offices | Established firms with strong processes |
Common questions
How much of an invoice can be funded?
It depends on the provider, your sector and the quality of your debtor book. Providers generally advance a substantial proportion of the invoice value upfront, with the remainder released once the customer pays. We will explain what is realistic for your circumstances before you approach any provider.
Will my customers know I am using invoice finance?
It depends on the type of facility. Factoring is usually disclosed, because the provider deals with your customers to collect payment. Invoice discounting can often be arranged confidentially, so customers continue to pay you as normal. Confidentiality is subject to the provider's criteria.
Is invoice finance the same as a loan?
No. A loan gives you a fixed lump sum to be repaid over time. Invoice finance releases money against invoices you have already issued, so the amount available moves with your sales ledger and there is no fixed repayment schedule in the same sense.
Can I use invoice finance if I already have a bank overdraft?
Often, yes, though the existing lender may hold security over your debtors which would need to be considered. This is a common situation and one we can help you work through.
What does a broker actually do?
We take the time to understand your business, explain the facility types in plain terms, identify providers whose appetite matches your profile, and support you through the application. Our aim is a facility that suits how you actually operate, not simply the first offer available.
Reading helps. A short conversation about your own business usually helps more.
Discuss your options