Invoice Finance

How does Invoice Finance work?

The business issues invoices to its customers as normal. Those invoices are submitted to the finance provider, who advances a percentage of the value, typically 70 to 90%, straight away. The business gets the cash, the customer pays on their usual terms.

When the customer pays the invoice in full, the remaining balance is released to the business, minus the lender’s fee. The fee is generally made up of a service charge (a percentage of turnover) and a discount rate (similar to interest, charged on the funds advanced). The exact structure varies by lender and product.

The facility runs on an ongoing basis, as new invoices are issued, they can be added to the facility, meaning the available funding grows in line with the business’s sales ledger.

What types of Invoice Finance are available?

There are three main variants, each with a slightly different structure:

Invoice Factoring: The lender buys the invoices outright and takes over the collection of payment from the business’s customers. The lender manages the sales ledger and chases payment directly. This frees up the business from credit control work, but customers will be aware of the arrangement.

Invoice Discounting: The business retains control of its sales ledger and continues collecting payments itself. The lender advances funds against the invoice value in the background. Customers are not aware of the arrangement. This is the more common choice for businesses that want to keep the financing confidential.

Spot Invoice Finance: A selective arrangement where individual invoices are financed on an as-needed basis, rather than committing the entire ledger. More flexible, though typically more expensive per invoice than a whole-ledger facility.

The right structure depends on the volume of invoicing, whether confidentiality matters, and how much the business wants to retain control of its credit function.

Who is Invoice Finance for?

Invoice finance is designed for B2B businesses, those that invoice other businesses rather than charging consumers at point of sale. It works best where payment terms are extended (30 days or more), invoices are of meaningful value, and the sales ledger is a reasonable size.

It’s particularly common in sectors where slow payment is structural rather than exceptional: manufacturing, recruitment, logistics, construction, engineering, and professional services. In these industries, a business can be growing strongly and still run into cash flow pressure simply because customers take time to pay.

It can also work for businesses that are growing quickly, where the gap between delivering work and receiving payment is holding back further investment. Invoice finance scales with turnover, so as the business grows, the available facility grows with it.

Is Invoice Finance confidential?

It depends on the product. Invoice discounting is typically confidential, your customers pay into a bank account that looks like yours, and the involvement of a finance provider is invisible to them. The business manages its own credit control.

Invoice factoring is not confidential. The factor contacts your customers directly to collect payment, which means customers will know an arrangement is in place. For some businesses this is perfectly acceptable; for others, particularly those with sensitive client relationships, confidentiality is important.

If confidentiality matters, specify this upfront. Most of the market can accommodate a confidential facility for businesses with a suitable turnover and ledger quality.

What happens if a customer doesn’t pay?

This depends on whether the facility is recourse or non-recourse. Under a recourse arrangement, if the customer fails to pay, the advance against that invoice must be repaid by the business. The risk of bad debt stays with the borrower.

Under a non-recourse arrangement, the lender absorbs the credit risk. If a customer becomes insolvent or refuses to pay, the business keeps the advance and the lender takes the loss. Non-recourse facilities offer greater protection but are typically more expensive and may only be available to businesses with strong debtor books.

Most standard invoice finance facilities are recourse. Understanding this distinction before entering an agreement is important, particularly for businesses with a small number of large customers where a single non-payment would be significant.

How quickly can funds be accessed?

Once a facility is set up, funds against new invoices are typically released within 24 hours of submission. The initial setup process, account opening, ledger review, and facility agreement, usually takes between five and ten working days.

For businesses that need funds quickly, the priority is to get the application started as early as possible. Once the facility is live, the mechanics are fast: invoice raised, invoice submitted, advance received. It becomes part of the rhythm of the business rather than a separate financing exercise each time.