What is invoice finance?
Invoice finance lets you unlock cash from your outstanding invoices before your customers pay. Instead of waiting 30, 60, or 90 days for payment, you advance most of the invoice value immediately — and receive the remainder (minus the fee) when the customer pays.
It is one of the most common forms of business finance in the UK, with over £20 billion advanced to UK businesses annually.
How it works
- You raise an invoice to a customer for goods or services delivered
- You share the invoice with your invoice finance provider
- The provider advances 80–95% of the invoice value — typically within 24 hours
- Your customer pays the invoice on their normal payment terms
- When payment is received, the provider releases the remaining amount to you, minus their fee
Example:
- Invoice value: £50,000
- Advance rate: 85% → advances you £42,500 today
- Customer pays in 60 days
- Fee: 2% of invoice value → £1,000
- Final payment to you: £50,000 − £42,500 (already received) − £1,000 (fee) = £6,500
Types of invoice finance
Invoice discounting (confidential)
The most common form for established businesses. You continue to manage your own sales ledger and credit control. Your customers do not know that invoices are being financed. Available to businesses with strong credit control processes and £100k+ annual turnover.
Invoice factoring
The provider takes over credit control — chasing payments from your customers under their own name (or sometimes under yours). Often preferred by smaller businesses that don’t have a dedicated accounts receivable function. Your customers will typically know the invoices have been factored.
Selective/spot invoice finance
Finance individual invoices as needed, rather than the whole ledger. More flexible, typically more expensive per invoice. Good for businesses that occasionally have large one-off invoices they want to advance.
Costs
Invoice finance fees typically include:
Service fee (factoring only): 0.5–3% of annual turnover, charged as a percentage of each invoice financed. Covers credit control and ledger management.
Discount fee: similar to an interest rate — charged on the funded balance, per day or per month. Equivalent APR is typically 3–12%.
Additional fees: some providers charge minimum monthly fees, termination fees, or audit fees. Always check for these in the small print.
Which businesses benefit most from invoice finance?
Invoice finance works best for:
- B2B businesses with commercial customers on credit terms (30–90 day payment terms)
- Businesses with recurring, large invoices rather than many small retail transactions
- Growing businesses that need working capital to fulfil new contracts
- Businesses with slow-paying customers — particularly in construction, recruitment, manufacturing, and professional services
- Businesses that bank has declined — the debtor book, not the business’s credit, is the security
What invoice finance does not suit
- Businesses without outstanding B2B invoices (retailers, hospitality, consumer services)
- Businesses whose customers are consumers (B2C) — most invoice finance requires commercial debtors
- Businesses with very small average invoice values — administration costs make it uneconomical
How to compare invoice finance providers
Invoice finance rates and terms vary significantly. Key comparison points:
- Advance rate (how much of the invoice is advanced)
- Discount fee (the ongoing cost of the facility)
- Service fee (if factoring)
- Minimum monthly fees
- Termination and notice period
- Reporting and transparency of cost
Apply through Fundably’s multi-lender panel to compare invoice finance options across 50+ providers with one soft-credit application.