What Is Invoice Finance?
Invoice finance is a form of business lending that uses your outstanding invoices as collateral.
Instead of waiting 30–90 days for a customer to pay, the lender advances you up to 85–90% of the invoice value immediately. When your customer pays, the lender releases the remaining balance minus their fees.
Unlike a traditional business loan, invoice finance does not add new debt to your balance sheet — you are simply accelerating payment on invoices you have already earned. The facility grows automatically with your turnover: the more you invoice, the more you can draw.
We found invoice finance particularly valuable for B2B businesses whose cash flow problems stem from slow payment by large clients rather than underlying profitability issues. If you are profitable on paper but regularly waiting for payment, invoice finance addresses the root cause directly.
How Invoice Finance Works in Practice
You raise an invoice to a commercial customer for £10,000 with 60-day payment terms. You submit the invoice to the lender, or the lender receives it automatically if integrated with your accounting software. The lender advances 85% — £8,500 — within 24–48 hours.
When your customer pays the £10,000 invoice after 60 days, the lender receives the payment. They deduct their service charge (typically 0.75–2% of invoice value) and their discount charge (interest on the advanced amount for the period it was outstanding), then release the remaining balance to you.
On a £10,000 invoice at 85% advance, 1.5% service charge, and 2.5% annual discount charge over 60 days: you receive £8,500 upfront. The lender deducts £150 (service charge) plus approximately £35 (discount charge), then releases the remaining £1,315 when the customer pays.
Who Invoice Finance Suits
Invoice finance works best for B2B businesses with commercial invoicing, reliable customers who pay eventually but slowly, and consistent invoicing rather than one-off project work.
Most whole-ledger facilities require minimum annual turnover above £100,000. Selective invoice finance has lower thresholds and suits smaller businesses.
We found it less suitable for B2C businesses (retail, hospitality) — invoices need to be to other businesses, not individual consumers.
It is also less suitable if your debtor book is concentrated (one customer representing more than 30–40% of your ledger), or if your invoices are regularly disputed or subject to credit notes.
Minimum requirements vary by lender and facility type. Selective invoice finance — where you fund individual invoices rather than the whole ledger — has lower minimums and is accessible to smaller businesses.
Whole-ledger factoring and discounting facilities suit businesses with £250,000 or more of annual invoiced turnover.
Invoice Factoring vs Invoice Discounting
Invoice factoring means the lender manages credit control on your behalf — they chase your customers for payment directly. Your customers receive remittance advice and payment requests from the factor rather than from you. This is visible: customers know you are using a factoring facility.
Invoice discounting keeps the arrangement invisible to your customers. You retain full credit control — you chase payment, manage the customer relationship, and handle disputes yourself.
The lender advances funds against your invoices but does not contact your customers. Discounting typically costs less than factoring because the lender does not provide the credit control service.
We found factoring appropriate for smaller businesses that lack the resource to manage credit control effectively. Discounting suits businesses with established credit control processes and a preference for confidentiality.
The visibility trade-off is the central decision point for most businesses choosing between the two.
Costs of Invoice Finance
Invoice finance has two main cost components. The service charge (also called the administration fee or factoring fee) is a percentage of each invoice value — typically 0.75–2.5% for factoring, and 0.2–1% for discounting.
The discount charge is interest on the advanced amount for the period it is outstanding — typically quoted as a percentage above the Bank of England base rate.
At 2.5% above base rate (currently 4.5%, making 7%), a 60-day advance on £10,000 at 85% advance rate costs approximately £100 in discount charge.
We found invoice finance cheaper than a short-term unsecured business loan for businesses with consistent invoicing above £200,000 per year.
The total cost scales with invoice value rather than being a fixed rate on a lump sum — so well-managed businesses with large invoices pay proportionally less per pound of funding.
How to Apply for Invoice Finance
To apply for a whole-ledger facility, expect to provide six to twelve months of business bank statements, an aged debtor report (outstanding invoices by customer and due date), and sample copies of invoices and customer contracts.
You will also need one to two years of filed accounts or management accounts for newer businesses, plus director ID.
Selective invoice finance — funding individual invoices without committing to a whole facility — requires less documentation. The lender assesses each invoice individually: typically a copy of the invoice, proof of delivery or completion, and basic business information.
Compare at least two providers before committing. Rates, advance rates, and contract terms vary significantly.
Ask specifically about concentration limits (the maximum any single customer can represent of your ledger), minimum contract periods, and notice periods for exiting the facility.
Invoice Finance FAQs
What is the difference between invoice finance and a business loan?
A business loan provides a fixed lump sum repaid over a set period. Invoice finance is a revolving facility that grows with your invoicing — draw against invoices as you raise them, repay when customers pay. Invoice finance does not add new debt to your balance sheet; it accelerates existing receivables.
Can invoice finance damage customer relationships?
Invoice discounting is invisible to customers — they pay you directly as normal. Invoice factoring involves your customers interacting with the lender for payment. Established providers handle this professionally, but disclose the arrangement to key customers proactively rather than letting them discover it.
How quickly can I access funds through invoice finance?
Once established, funding takes 24–48 hours from invoice submission. Setting up a whole-ledger facility takes one to three weeks (due diligence on your debtor book is required). Selective invoice finance is faster — some providers fund within hours of invoice verification.
What happens if a customer does not pay their invoice?
With recourse factoring (the more common type), you must repay the advance to the lender if the customer does not pay. With non-recourse factoring, the lender absorbs the bad debt — but this costs more and is available only for customers with strong credit ratings. Always clarify which type applies before signing.
How we reviewed this
What we covered. This guide explains how this product type works for UK businesses, drawing on FCA guidance, Bank of England publications, and lender documentation. We do not draw on comparison site summaries or aggregator data.
Data sources. All claims were checked against primary sources in April 2026, including provider websites, FCA guidance, and Bank of England publications. We do not cite comparison site summaries or affiliate aggregator data.
Update cadence. We re-verify this page at least monthly, and whenever a provider changes pricing, eligibility, or terms. The verification date on the page reflects the most recent full review. Some links on this page are affiliate links, see our editorial policy.
Regulatory note. This page is editorial content, not regulated financial advice. Credit products are subject to status and approval. Compare offers directly with providers before you apply.