Invoice finance is when the lender uses an unpaid invoice as security for funding, giving you quick access to a percentage of that invoice’s value quickly, sometimes within 24 hours.
The amount of money a provider will lend you is based on its own risk criteria.
But this method of funding lets you access finance for cashflow or investment purposes, using an often-untapped asset on your balance sheet.
There are two main types of invoice finance:
This allows businesses to generate money against unpaid invoices.
The finance provider will lend you up to 90% of the value of your invoices.
It will also manage your sales ledger and collect payment for your invoices direct from your customers.
It will then deduct the costs of the factoring service, before paying you the remaining balance.
This works in a similar way to factoring, but your business keeps control of customer payments.
You pay a fee and a discount charge (like interest) if you use the funding, much like a standard overdraft.
There are lots of different invoice finance providers in the UK, ranging from specialist invoice finance companies to banks and other financial institutions.
Are you an established business with a trading history?
A lender will ask you to prove that you issue invoices to customers, as assurance that they will get paid.
Are you looking for less than £1 million?
There’s no minimum threshold for invoice finance.
But if you need more than £1 million, other finance solutions may be more suitable for your business.
Do your customers pay invoices within 30 to 90 days of you issuing them?
If it takes longer than 90 days for customers to pay your invoices, invoice finance providers may not approve your application.
This is because they would have to wait too long to receive the money they’ve lent you.
It’s worth speaking to a few lenders as each will have different terms.
Do you have detailed and accurate financial statements covering your trading history?
The lender needs to detail your trading history clearly and accurately, so will review your financial statements.
Do your customers have a good record of paying bills?
Invoice finance providers will also review your customers and their paying habits, and look for those who pay invoices on time and have a strong credit rating.
Do you provide goods or services to other businesses?
Invoice finance is normally only available to businesses that trade with others (known as business-to-business, or B2B).
A lender won’t necessarily turn you down if your customers don’t fall within this bracket, but may offer you less finance as a result.
Potential to affect your credit report
Invoice finance providers will conduct credit checks when you apply for finance.
These checks could have an impact on your credit report.
You're depending on your customers paying
Depending on your agreement, the invoice finance provider may hold you accountable if a customer fails to pay an invoice.
Invoice finance providers will make certain charges, depending on the service you require.
You can search for invoice finance providers online or alternatively, view invoice finance providers for the Recovery Loan Scheme (RLS)Link opens in a new window on the British Business Bank website.
Before you get going, use this checklist to help decide whether invoice finance is suitable for your business.
Finance Hub guidance and information
What is equity financing?
- Learn more about the most common forms of equity finance and find out which types of businesses this business finance is ...
Good debt versus bad debt
- Understanding the difference between 'good' and 'bad' debt can help business planning and ensure that debt is used activ ...
Other forms of finance
- Learn more about other forms of finance...
Other finance options
|Purpose of financessss||Change in shareholder ownership, management buy-outs, acquisition, product development, entry into new markets|
|Amount of finance||£10m-£50m|
|Duration of finance||3-5 years|
|Cost of finance||Monitoring and director fees; loan note interest|
|Time of finance||Minimum of 3 months but can take up to a year|
|Business stage||Mature and growing; profitable|
|Business stage||Established with assets and a trading history|
Leasing & Hire Purchase
|Business stage||Early stage to established with a trading history|
Enter your postcode to find business support and case studies from businesses within your region. You'll be taken to our interactive map.
Making business finance work for you
Starting a business doesn’t come with a set of instructions.
We know that understanding the many different types of financial product in the marketplace can be difficult.
Our Making business finance work for you guide is designed to help you make an informed choice about accessing the right type of finance for you and your business.