Business finance
Invoice finance
Invoice finance advances funds against invoices your business has already issued but not yet been paid for. Instead of waiting out the payment terms, you access a portion of the value sooner, and the arrangement settles when the customer pays.
It suits businesses that invoice other businesses on terms. It does not suit businesses paid at the point of sale, because there is no receivable to advance against.
What it is
The receivable itself is what supports the facility, which changes the assessment considerably. A lender is looking at who owes you money and how reliably those customers pay, as well as at your business.
That means a young business invoicing large, creditworthy customers can sometimes access this where it could not access an unsecured loan.
- Invoice discounting: you keep collecting from customers yourself
- Factoring: the financier takes on collection of the invoices
- Selective or single invoice finance: used for specific invoices rather than the whole ledger
How it usually works
You issue an invoice as normal and submit it to the financier, who advances an agreed proportion of its value. When your customer pays, the balance is settled less the financier's charges.
Whether your customers know about the arrangement depends on which form you use. Factoring is usually visible to them because collection moves to the financier; discounting is often not. If the relationship with your customers matters to you, raise it early, because it narrows which option suits.
What lenders look at
Assessment leans heavily on the quality of your debtor book, which is unusual among business finance products.
- Who your customers are and how creditworthy they are
- How concentrated the ledger is across a few customers
- Your invoicing terms and how reliably customers meet them
- Whether the work is complete and the invoice undisputed
- Your own trading history and credit position
- The systems you use to raise and track invoices
When it tends to suit
- Long payment terms on work you have already completed
- Growth that ties up more cash in receivables as it goes
- Trading with large customers who pay reliably but slowly
- Taking a contract whose payment schedule sits behind your costs
- Reducing the time spent chasing payment, where factoring suits
Common questions
Will my customers know?
With factoring, usually yes, because collection moves to the financier. With invoice discounting, often not. Tell the specialist if this matters to you, because it affects which arrangements suit.
Do I have to finance every invoice?
Not always. Some facilities cover the whole ledger while others let you choose specific invoices. Which is available depends on the financier.
What if a customer does not pay?
That depends on whether the facility is recourse or non-recourse, which determines who carries the loss. It is one of the most important things to understand before signing, so ask about it directly.
Related finance types
See which lenders fit your business
A specialist compares lenders that work with invoice finance and explains the options in plain English. No cost, no obligation.
Around 60 seconds. No obligation. Not a lender.