Invoice finance

Using unpaid invoices as security, to gain quick access to a percentage of their value.

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:

Factoring

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.

Invoice discounting

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 £1m?

There’s no minimum threshold for invoice finance. But if you need more than £1m, 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.

  • Capitalise on an often unused asset on your balance sheet
  • Improve your cashflow
  • Access finance quickly
  • Flexible in terms of how you can spend the facility
  • You don’t have to give away equity

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.

Fees

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.

Other finance options

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Expansion Capital firms give established businesses money to grow and reach maturity.

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Post revenue, profitable and growing businesses with a turnover typically between £5m and £50m. Businesses need to be willing to give up a stake in the business in exchange for finance.

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ABOUT Expansion Capital
Purpose of financessss Create new products, enter new markets, acquire other businesses or invest in new systems and equipment to drive growth
Amount of finance £2m-£20m (depending on % shareholding acquired and value of company)
Duration of finance 3-5 years
Cost of finance Due diligence and legal fees will apply. If you appoint an advisor, they will expect a retainer fee
Time of finance Minimum of 3 months but can be up to a year
About your business
Business stage Post-revenue, profitable and growing
Annual turnover £5m-£100m
Sectors All
Regions All
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Businesses can borrow money on demand up to the limit of their overdraft. Overdrafts can be expensive, but a business will only pay interest on the amount they actually borrow.

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Established businesses with assets and a trading history.

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Short-term working capital, quickly.

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Private Equity firms invest in established businesses in return for a large or controlling stake, to help them grow to the next level.
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Business stage Established with assets and a trading history
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A business borrows money from a fund and repays it with interest. A fund may be able to provide loans where a bank will not.

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Businesses with assets to use as security against lending.

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Flexible and tailored loans and to maintain full control of your business.

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Annual turnover Any
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