Invoice finance is a form of asset-based lending that allows businesses to access immediate cash flow by using their outstanding customer invoices as security. The process works by submitting approved invoices to a finance provider, who advances typically 70-90% of the invoice value within 24 hours. When your customer pays the invoice, the finance company releases the remaining balance minus their service charges.

There are several main types of invoice finance available in the UK:

Invoice Factoring: A comprehensive service where the finance provider purchases your invoices and manages your sales ledger, including debt collection. Customers pay the factor directly, and advance rates typically range from 80-90% of invoice values.

Invoice Discounting: A confidential arrangement where you retain control of your sales ledger and customer relationships. Customers continue paying you directly, while the finance provider advances funds against your outstanding invoices.

Selective Invoice Finance: Allows you to choose specific invoices for funding rather than committing your entire sales ledger. This provides maximum flexibility but typically at higher rates.

Invoice finance costs typically include several components:

Discount Charges: Usually 2-8% above Bank of England base rate, calculated daily on outstanding advances.

Service Fees: Range from 0.5% to 2.5% of monthly turnover, covering administration and credit checking.

Setup Fees: One-time charges of £500 to £5,000 for facility establishment.

Invoice finance typically provides very fast access to funding:

Initial Assessment: Preliminary quotes available within 24-48 hours of initial enquiry.

Application Process: Detailed applications typically take 5-10 working days for approval, depending on business complexity.

Legal Completion: Documentation and facility setup usually takes 3-5 working days once terms are agreed.

This depends on the type of facility you choose:

Invoice Discounting: Completely confidential – customers continue paying you directly and are unaware of the financing arrangement.

Invoice Factoring: Customers are notified and make payments directly to the factor. However, professional factors maintain high service standards and often improve customer relationships.

Selective Invoice Finance: Can be structured as either confidential or disclosed, depending on your preferences and the provider’s requirements.

The treatment of unpaid invoices depends on your facility structure:

Recourse Facilities: You remain responsible for unpaid invoices and must typically buy them back after 90-120 days. This maintains ultimate collection responsibility with your business.

Non-Recourse Facilities: The finance provider assumes bad debt risk for approved customers, protecting you against customer insolvency or protracted default. This typically costs an additional 0.1-0.5% but provides valuable credit protection.

Invoice finance can positively impact your credit profile:

Improved Cash Flow: Better working capital management and timely payment of suppliers can strengthen your credit rating.

Professional Credit Management: Many providers offer credit checking and monitoring services that can improve your overall credit management.

Reduced Bank Borrowing: Using invoice finance may reduce reliance on traditional bank borrowing, potentially improving your debt-to-equity ratios.

Credit Protection: Non-recourse facilities provide protection against bad debts that could otherwise damage your financial position.