Invoice Finance: When 60-Day Wait Becomes a Cash Flow Problem

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

Here is the typical process. 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 is best suited to: B2B businesses (not B2C) with commercial invoicing, businesses with reliable customers who pay eventually but slowly, businesses with annual turnover above £100,000 (most whole-ledger facilities have a minimum turnover requirement), and businesses with consistent invoicing rather than one-off project work.

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 typically suit businesses with £250,000+ 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, strong customer relationships, 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

Standard documents for a whole-ledger invoice finance facility: 6–12 months of business bank statements, your aged debtor report (list of outstanding invoices by customer and due date), sample copies of invoices and customer contracts, 1–2 years of filed accounts (or management accounts for newer businesses), and 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.

We recommend comparing at least two providers before committing to a facility. Rates, advance rates, and contract terms vary significantly. Ask specifically about concentration limits (the maximum percentage any single customer can represent of your ledger), minimum contract periods, and notice periods for exiting the facility.

Invoice Finance FAQs