Invoice Finance: Frequently Asked Questions

Invoice finance is an increasingly popular funding option for businesses looking to improve their cash flow and access working capital quickly. Whether you’re new to the concept or considering using it for your business, we’ve compiled answers to some of the most frequently asked questions about invoice finance.

What is Invoice Finance?

Invoice finance is a way for businesses to unlock cash tied up in unpaid invoices. Instead of waiting 30, 60, or even 90 days for customers to pay, businesses can receive a large percentage of the invoice value upfront from a lender. Once the customer pays the invoice, the remaining amount is paid to the business, minus a small fee.

There are four main types:

• Invoice Factoring: The finance provider manages your sales ledger and collects payment from your customers.

• Invoice Discounting: You maintain control of your customer relationships and collections, usually a confidential service

• Selective Invoice Finance: You pick which individual customers you want to put through the service

• Spot Factoring: You pick individual invoices to advance funds against

Who Can Use Invoice Finance?

Invoice finance can only be used by B2B companies that invoice other businesses on credit terms. It’s particularly popular among:

• Manufacturers

• Wholesalers

• Recruitment agencies

• Logistics and transportation firms

• Construction and subcontracting companies

Startups and growing businesses with strong sales but inconsistent cash flow also benefit from invoice finance.

What Are the Benefits?

• Improved Cash Flow: Immediate access to cash for working capital.

• Growth Support: Helps fund expansion, payroll, or large new orders.

• Credit Control Assistance: (For factoring) The lender may handle collections.

• Flexibility: Financing grows in line with your sales volume.

How Much Does It Cost?

Costs vary based on:

• Your business size and turnover

• The value and volume of invoices

• The payment terms with your customers

• The level of service (factoring vs. discounting)

Typically, there are two types of fees:

1. Service Fee: A percentage of your annual turnover (usually 0.5–3%).

2. Discount Fee: Interest charged on the money advanced (often similar to an overdraft or loan rate).

How Quickly Can I Access Funds?

Many providers can release funds within 24 to 48 hours of invoice approval. Once your facility is set up, funding becomes a seamless part of your operations.

Is Invoice Finance Confidential?

Yes, particularly with invoice discounting. Your customers won’t know you’re using finance because you handle collections yourself. With factoring, the provider usually contacts your customers, so it’s more transparent.

Will It Affect Customer Relationships?

Not necessarily. Reputable providers use professional credit control practices and treat your customers respectfully. With discounting, since you maintain communication, there’s minimal impact.

Do I Have to Finance All My Invoices?

Not always. Some providers offer selective invoice finance or spot factoring, which allows you to choose which invoices or customers you want to finance. This gives you more control and flexibility.

What’s the Difference Between Invoice Finance and a Business Loan?

• Security: Invoice finance uses your receivables as security; loans may require other assets.

• Flexibility: Invoice finance grows with your sales, whereas a loan is a fixed amount.

• Speed: Invoice finance is generally faster to access than traditional loans.

Is My Business Eligible?

Most invoice finance providers look for:

• A minimum turnover (usually around £50,000+ annually)

• B2B trade on credit terms

• A clear sales ledger and invoice process

• Customers with good credit history

Final Thoughts

Invoice finance can be a powerful tool to bridge cash flow gaps and drive business growth. By understanding the options, costs, and processes involved, you can determine whether it’s the right fit for your business.

If you’re interested in exploring invoice finance further, consider speaking with a trusted advisor or finance provider who can tailor a solution to your needs.