Invoice finance lets you release cash tied up in unpaid invoices, rather than waiting for your customers to pay on their usual terms. A lender advances you a percentage of the invoice value as soon as you raise it, with the balance, minus fees, following once your customer pays. For businesses with long payment terms or fast growth, it can transform how cash actually moves through the company.
There are two main forms, factoring and invoice discounting, and which one suits you depends largely on how involved you want a lender to be in collecting payment.
| Feature | Invoice Factoring | Invoice Discounting |
|---|---|---|
| Who manages collections | The finance provider, on your behalf | You, keeping the relationship in house |
| Customer awareness | Customers usually know a factor is involved | Usually confidential, customers are unaware |
| Best suited to | Businesses wanting credit control support | Businesses wanting to keep control of collections |
| Typical advance rate | Often 80% to 90% of invoice value | Often 80% to 90% of invoice value |
Invoice finance and asset-based lending supported around £21.2 billion of advances to roughly 34,000 UK businesses, according to UK Finance, making it one of the more established forms of business finance, even though it’s less well known among smaller businesses than a standard loan.
We compare offers from a range of specialist invoice finance providers and high street banks, including:
Fees and advance rates vary between providers, and some specialise in particular sectors, such as recruitment or manufacturing, where invoice finance is especially common.
A recruitment agency placing temporary staff had to pay its workers weekly, while clients settled invoices on sixty-day terms. The gap was putting real pressure on cash flow. We arranged a factoring facility that advanced a percentage of each invoice as it was raised, with the provider also handling credit control, freeing up the agency’s time as well as its cash.
A manufacturer wanted to release cash from unpaid invoices without their customers knowing a finance provider was involved, given the sensitivity of the relationship. We arranged confidential invoice discounting, so collections stayed entirely in-house while the business still accessed the cash it needed.
Advance rates commonly sit around 80% to 90% of the invoice value, with the remaining balance released once your customer pays, minus the provider’s fees. The exact figure depends on your sector, customer base, and the provider.
It depends on the type. Factoring is usually visible to customers, since the provider often manages collections directly. Invoice discounting is typically confidential, so your customers continue dealing with you as normal.
No, it’s used by businesses of many sizes, particularly those with a genuine cash flow gap caused by payment terms rather than a lack of sales. If cash flow is the issue rather than overall borrowing, it’s worth comparing against a standard business loan to see which fits better.
Costs are usually made up of a service fee, covering administration and credit control, and a discount fee, similar to interest, charged on the amount advanced. Fees vary by provider and by how your invoices and customers are assessed.
