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.
- Best suited to
- B2B businesses invoicing on credit terms
- Funding basis
- A proportion of eligible unpaid invoices
- Main variants
- Factoring, discounting, selective
- Typical use
- Working capital, growth, payroll, suppliers
What invoice finance 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 invoice finance works
- 01
You raise invoices as normal
You deliver goods or services and invoice your customer on your usual credit terms.
- 02
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.
- 03
Your customer pays
Depending on the facility, either you or the provider collects payment when the invoice falls due.
- 04
The balance is released
The remaining value is passed to you, less the provider's fees and any interest charged on the advance.
The precise mechanics, timings and documentation vary between providers. This is the general shape of the arrangement.
Businesses it often suits
- 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
Typical eligibility indicators
- 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
These are indicators, not criteria. Each provider assesses businesses on their own terms, and meeting all of them does not guarantee a facility.
Is invoice finance suitable for my business?Where it helps, and what to weigh up
No facility is right for every business. These are the points that most often decide the matter.
Advantages
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.
Considerations
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.
Factoring or discounting?
Both release cash against unpaid invoices. The difference is who runs credit control, whether your customers know, and what that means for cost and control.
Invoice factoring
Funding plus collections
- Who collects payment
- The provider's credit control team
- Customer awareness
- Usually disclosed
- Control of customer relationships
- Shared with the provider
- Demands on your systems
- Lower
- Service fee
- Generally higher, reflecting the collections service
- Often suits
- Smaller or growing firms, lean back offices
Invoice discounting
Funding, you keep control
- Who collects payment
- Your own team
- Customer awareness
- Often confidential, subject to provider criteria
- Control of customer relationships
- Retained by your business
- Demands on your systems
- Higher: accurate ledger and reporting expected
- Service fee
- Generally lower
- Often suits
- Established firms with strong processes
Not sure which is appropriate?
Most businesses know within one conversation. Some move from one to the other as they grow.
Invoice Finance questions
Answers to the questions we are most often asked about this type of facility.
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.
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.
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.
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.
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.
- Funding plus collections
Invoice Factoring
Release cash against unpaid invoices while the provider manages credit control and collects payment from your customers.
Learn more - Funding, you keep control
Invoice Discounting
Draw funds against your sales ledger while continuing to run your own credit control, often without customers being aware.
Learn more - Fund what you choose
Selective Invoice Finance
Finance individual invoices or specific customers as the need arises, rather than committing your whole sales ledger.
Learn more
Could invoice finance work for your business?
Tell us about your customers, your invoicing and where the pressure sits. We will tell you whether this structure fits, and what the alternatives are.
No obligation. We will tell you plainly if invoice finance does not look like the right answer.