Top 5 Invoice Finance Providers
With so many invoice finance choices, choosing a provider can quickly become an overwhelming process. That’s
The Ultimate Invoice Finance Guide
You've probably heard of it, but what is invoice financing? and how can it help your business? Find out below...
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The Ultimate Invoice Finance Guide
You've probably heard of it, but what is invoice financing? and how can it help your business? Find out below...
A healthy cash flow is essential for every business, whether for day-to-day operations or long-term growth and sustainability. But even the best-run businesses can experience disruptions, especially if they’re sitting around waiting 90 days for an invoice to clear.
So, what’s the solution? Invoice finance!
But what is invoice financing? How can it help your business? And how can you find the best invoice finance provider for you?
Well, you’re in the right place to learn all this and more with our ultimate guide to invoicing financing. Let’s get going!
What is Invoice Financing?
Invoice financing is a financial solution that allows businesses to unlock cash tied up in unpaid invoices. It involves either selling or borrowing against these invoices, providing immediate working capital to manage operations and growth. This gives the seller an advance on the funds they would otherwise be waiting for.
Unlike traditional loans, invoice financing provides immediate access to the cash tied up in outstanding invoices, often hitting your bank account within 24 hours. This can help bridge gaps, stabilise operations, and fuel growth.Â
If you’re looking for a smarter, quicker way to manage your cash flow, invoice financing could be the solution you need to keep things moving forward.
How Does Invoice Financing Work?
Okay, so you know what invoice financing is, but how does it actually work? In straightforward terms, these are the steps:Â
Your customer gives you an invoice, and you have to wait for it to be paid. This could be 30, 60, or even 90 days.Â
You don’t want to wait around; you want your cash now, so you reach out to an invoice finance provider.Â
Using their assessment criteria, they agree to either lend you money against the invoices or purchase them outright. Typically, you can access between 80% and 95% of this total value.Â
You also agree on the fee the provider will receive for advancing the money.Â
Within 24 hours, that money is in your account, ready to be put to good use.Â
At this stage, things differ slightly depending on your financing type.
Invoice Factoring: Your customer will pay your provider directly. Then you will be reimbursed the remaining amount of the total invoice value minus the pre-agreed fees.
Invoice Discounting: You will receive the invoice payment directly from your customer. Using this money, you will pay back the total amount you borrowed, including the pre-agreed fees.Â
Scenario 1 – Invoice Factoring
Dave has sold £10,000 worth of construction materials, and the invoice will be paid in 90 days. He could really use that money now, so he finds an invoice finance provider to get the cash quickly. He assesses his options and decides invoice factoring is the way to go.Â
Dave sells a £10,000 invoice and gets 90% of it upfront, that’s £9,000 in his pocket right away. 90 days later, when Dave’s customer pays the full £10,000 to the invoice finance company, the company keeps a £500 fee for its service. The remaining £500 is sent to Dave.
All in all, Dave has received 95%, or £9,500, of his invoice, but received the money sooner than expected. Â
Scenario 2 – Invoice DiscountingÂ
Sam has also sold £10,000 worth of construction materials and has to wait 90 days for his invoice to be paid. He seeks out an invoice finance provider but chooses the invoice discounting option.Â
Instead of selling his unpaid invoices, Sam borrows 90%, or £9,000, against their total value. He also agrees to a £500 service fee. Sam gets his money within 24 hours, and everyone’s happy.Â
Once Sam receives this invoice, it’s time to pay his provider. So he pays back the £9,000 he borrowed plus the £500 fee, leaving him with £500.Â
Types of Invoice Financing
Invoice Factoring
Invoice factoring involves taking your unpaid invoices, finding a provider, and selling them for a percentage of the invoice’s value. Instead of waiting for the invoice payment date, which can be as long as 90 days, you’ll typically get this cash within 24 hours.
With invoice factoring, your provider, or ‘factor’, is responsible for collecting the payments directly from your customers. They then repay you the remaining balance, minus a pre-agreed service fee.
On one hand, this is great, you don’t have to worry about chasing up unpaid invoices, and if your customer defaults on their payment, you’re in the clear. However, it does mean that your customers know you are outsourcing your credit control, which may impact their perception of your business. Fees also tend to be higher for this type of financing as there’s more risk for your provider.
Invoice Discounting
Invoice discounting works very much the same, but with a slight twist. Instead of selling your invoices, you borrow against them. This means that you are still responsible for chasing up and collecting the money, and using this money to repay the money you borrowed, plus a pre-agreed service fee.
This keeps everything confidential, so your customers won’t know you’re using the service. You’ll also typically benefit from lower fees and a less stringent application process, which makes it perfect for those on a budget or with a poor/limited credit history.Â
This is because it’s less of a risk for your provider. If your customer doesn’t pay, they don’t care. You will still owe your provider the borrowed money, without the income from the unpaid invoices.Â
Although it’s flexible and more cost-effective than factoring, make sure you have the money to cover the repayment and their service fees. If you’re dealing with some less-than-scrupulous individuals or businesses, maybe don’t pick this option.Â
Recourse vs. Non-Recourse Factoring
When we discussed invoice financing at the top of this list, we mentioned how you sell your invoice to your provider. Then, if anything goes wrong, it’s up to them to find a solution. Recourse factoring is the same principle, but if your customer fails to pay, you’re obliged to repurchase the invoice for what you paid for it.Â
Why would you do this? Well, it’s similar to invoice discounting, where you will benefit from better fees. But if your customers don’t pay and you have already spent the money from the invoice you sold, you could be in big trouble.Â
Like discounting, this is all about weighing the risk, and only you know whether it’s one worth taking.
Selective or Spot Factoring
Think of selective or spot factoring as a pay-as-you-go kind of thing. It allows you to pick and choose specific invoices instead of the entire sales ledger. This lets you access up to 90% of your invoices as and when you need them, on a one-off basis, without a long-term commitment.Â
An advantage of selective invoice financing is that you won’t typically have a minimum amount you can borrow against. This makes it an excellent choice for those looking to raise some quick cash for cash flow or emergency needs, using invoices that won’t be accepted in other types of invoice financing. Fees are also charged per transaction, making it highly cost-effective.
Spot financing works much like traditional invoice financing, and it comes in two forms: factoring and discounting.
With factoring, your finance provider takes over the responsibility of collecting payment from your customer.
With discounting, you stay in control and handle the payment collection yourself.
Construction/Contract Invoice Financing
Construction or contract invoice financing is tailored to businesses operating in sectors where work is invoiced in stages or upon achieving specific milestones, such as construction or large-scale projects. This allows you to access funds against certified or approved invoices, even if the entire project isn’t yet complete.Â
They address cash flow issues between completing work and receiving payment, allowing you to pay contractors, purchase materials, and manage ongoing costs.Â
Reverse Invoice Financing (aka Supply Chain Finance)
So, what happens if the shoe is on the other foot? What if you’re buying something and the person you’re purchasing it from needs to pay now, not in 90 days? Enter reverse invoice financing, aka supply chain finance.Â
In this arrangement, you partner with a finance provider to offer early payment to your supplier, who can choose to receive the invoice amount ahead of the due date. You then repay the finance provider on the original payment terms, potentially extending their own payment period.Â
What are the Benefits of Invoice Financing?
Immediate Access to Cash
Is there anything worse than waiting around for 90 days to get paid? All of that money is just sitting there doing nothing when you can put it to good use. Well, with invoice financing, you can get your money in as little as just 24 hours.Â
This rapid access to working capital is then yours to do with as you see fit. Maintain smooth day-to-day operations, cover expenses like payroll and supplier payments, or fund expansion into new markets. You could even buy a hot tub for the office, but make sure you’re covering the essentials first.Â
Improved Cash Flow Management and Planning
The quick injection of funds allows you to better manage your cash flow and plan for the future. Because of its predictability, it brings certainty to your balance sheet. This helps you make more informed financial decisions, avoid cash flow shortfalls, and tackle any opportunities or challenges head-on.Â
If you’re a seasonal business, this stability will be a welcome arrival at times of the year when your income may fluctuate.
Supports Business Growth Without New Debt
Unlike traditional loans, invoice finance is not a form of borrowing that adds to your overall debt. Instead, it advances the money you already have coming through confirmed sales. Now you can invest in growth, such as hiring new staff, upgrading/purchasing new property, acquiring new equipment, or expanding your operations without going into the red.
Flexibility and Scalability
Invoice finance is highly flexible and scalable, adapting to your business’s needs as it grows. The amount of funding available increases in line with your sales, so as your turnover rises, so does your access to funds. Some providers also offer selective invoice finance, allowing you to pick and choose which invoices to finance, without long-term contracts, giving you even greater control and flexibility.Â
Saves Time and Reduces Administrative Burden
If you use invoice factoring, you get your cash and are no longer responsible for chasing and collecting customer payments. This frees up so much time for your team and removes the sometimes uncomfortable tasks of credit control and debt collection. By outsourcing this, you and your team can focus on more important tasks rather than hunting down overdue payments.Â
Maintains or Improves Customer Relationships
With invoice discounting, your customers won’t be informed that you’re using invoice financing services. This can help preserve your business relationships and avoid any unwanted attention. Â
Even with factoring, where the provider contacts your customers directly, the collections process is handled professionally, which can lead to improved customer payment behaviour and a more structured payment process.Â
Accessible Even with Poor Credit
A big challenge for businesses trying to access extra funds can be their poor or limited credit history. As opposed to other forms of business financing, invoice finance providers are primarily interested in the creditworthiness of your customers rather than your own business’s credit score.Â
Invoice financing is also less stringent than more traditional forms of business loans, which makes it perfect if your business’s credit history is less than perfect.Â
Minimal Paperwork and Fast Setup
Modern invoice finance solutions are designed to be quick and easy to set up, with minimal paperwork required. Many providers offer digital platforms that integrate with popular accounting software like Xero, making things even easier. This gives you quick access to funds without the fuss.
How to Choose the Best Provider for Your Business
Accreditation
Choosing an accredited, respectable provider is non-negotiable when it comes to invoice financing. Yes, Fat Tony’s Loan Shark Inc. may offer you great fees, but are you really going to take that risk? Always choose a provider recognised within the industry and accredited by a reputable industry body.Â
Look for those that UK Finance recognises and adhere to the Invoice Finance and Asset-Based Lending (IFABL) Standards Framework. This demonstrates a commitment to the industry’s best practices, transparency, and ethical conduct.Â
Industry Experience
Some providers will have experience in your sector, which can make all the difference. Because they understand your industry’s unique cash flow cycles, challenges, and risks, they can help make the process as simple as possible. This expertise allows them to tailor their services and risk assessments, potentially offering you better terms than general providers.
For example, a provider with experience in manufacturing may be better suited to handling large invoice volumes or complex supply chains than one focused on professional services.
Technology Integration
Do you use accounting software like Xero, NetSuite, or QuickBooks? If so, find a provider that offers seamless integration with these systems. Modern invoice finance platforms automatically sync invoices, track payments, and provide real-time reporting, making the process far quicker and smoother than manually performing these tasks.Â
This not only saves time but also minimises the risk of errors, giving you clearer visibility over your cash flow and outstanding invoices.
Customer Support
Evaluate each provider’s level of customer support and account management services. Reliable support is crucial, especially when things go wrong, like issues with collections, payments, or system integration. If your provider offers dedicated account managers for a more personalised service, even better!Â
Check reviews on sites like TrustPilot and Google to gauge what customers say about them. High ratings and positive feedback are always a good sign. One or two poor ones are to be expected, but if you notice the same problems popping up repeatedly, chances are it’s a legitimate concern you need to take note of.
Contract Terms
Ensure you understand all the nitty-gritty of your contract terms before signing anything. Pay close attention to who is responsible for collecting the payment from the invoices. Pay even closer attention to whether the agreement is recourse (you are liable if your customer doesn’t pay) or non-recourse (the provider takes on the risk of non-payment).
Review all fees, notice periods, and parties’ rights and obligations. Transparent contracts help you avoid getting stung with hidden costs and let you know exactly what to expect.
Regulatory Bodies
It’s important to know that invoice finance isn’t regulated by the Financial Conduct Authority (FCA). But that doesn’t mean it’s not a legitimate financial product; it just means you need to understand what you’re signing up for.Â
Some providers may also offer other forms of business finance that are FCA-regulated, meaning those particular services (and the providers offering them) meet specific standards and protections. This is a good sign, but always double-check to make sure they have the accreditations and follow the guidelines we mentioned in the first point.Â
How Can I Get Invoice Finance for My Business?
With so many different invoice finance providers out there, it can quickly become an overwhelming decision, but it doesn’t have to be. At Commercial Experts, we’ve made it our mission to help UK businesses like yours find the best invoice finance solutions for their business, and we’d love for you to be our next success story.Â
All you have to do is tap the button on this page and answer a few questions about your business. Then, based on your responses, you will receive various invoice finance quotes tailored to your specific needs.Â
All quotes are 100% free and non-committal, so what are you waiting for? Tap the button below and get comparing now!Â
FAQs
What is invoice financing, and how does it work?
Invoice financing lets businesses access cash tied up in unpaid invoices. You either borrow against or sell them to a provider, typically receiving 80–95% upfront. This gives immediate working capital, improving cash flow without waiting 30–90 days for customers to pay their invoices.
What’s the difference between invoice factoring and invoice discounting?
Invoice factoring involves selling invoices to a provider who collects payment directly from customers. With discounting, you borrow against invoices but handle collections yourself. Factoring is visible to clients, while discounting remains confidential, offering more discretion but placing responsibility for repayment entirely on your business.
Is invoice finance suitable for businesses with poor credit?
Yes, invoice finance is often ideal for businesses with poor or limited credit history. Approval is based on your customers’ creditworthiness, not your own. This makes it a flexible funding option for newer businesses or those turned down by traditional lenders or banks.
What are the main benefits of using invoice finance?
Key benefits include fast access to funds, better cash flow management, no added long-term debt, and improved operational efficiency. It also helps businesses handle late-paying customers, scale operations, and free up time by outsourcing payment collection through invoice factoring when needed.
How can I get invoice finance for my business?
Just tap the button on this page and answer a few simple questions, and you’ll receive a range of tailored, no-obligation quotes from some of the UK’s leading providers. It’s free, fast, and designed to help you compare your best options and get invoice finance that suits your business needs!
