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Invoice Financing - What Is It & How Does It Work?

 Invoice finance is a popular way of being able to get hold of your money sooner.

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What Is Invoice Financing?

Invoice finance is a financial solution that allows you to cash in on outstanding invoices before the invoice period is up.

Typically, you will be able to access up to 90% of your invoice's total value, and you could even see the money hit your bank account within 24 hours. 

This can help improve your cash flows, free up funds for operations and investments, and bridge the gap between invoice and payment dates. 

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How Does Invoice Financing Work?

Invoice financing is like a regular type of loan that you would take out for your business, but you use your unpaid invoices as security. 

Typically, you will be able to access up to 90% of your total invoice value immediately. After the invoices have been paid, the remaining value-minus any fees your provider may charge-is then transferred to you. 

Say your total invoice value is £100,000 and the invoice period is 90 days, but you could really do with that cash now. 

You go to your lender and essentially "sell" your invoices to them. 

They have agreed to pay you 90% of your invoice total within 24 hours. You check your bank the next day, and hey presto, there's a cool £90,000 sitting in there for you to do with as you please. 

They take the payment directly from your customers so you don't have to waste any time chasing them up if there are any delays or errors. 

In 90 days, when the invoices are paid, they will then pay back your remaining £10,000. But they have to make their money somehow, so they're charging you interest and a management fee.

In this case, it's £7,000, so this is taken from the outstanding £10,000, leaving you with a second incoming payment of £3,000. 

Despite the fact that the total amount of your invoices was £100,000, using invoice financing cost you £7,000, so you will actually have made £93,000 from them. 

Types of Invoice Financing

There are four main types of invoice financing. 

Invoice Factoring 

This is the most common type, and it works in the same way as the above example. Up to 90% up-front, then the remaining value-minus pre-agreed fees-upon the payment of the invoices. 

Invoice factoring providers take the payments directly from your customers and will often take the responsibility of chasing any late payments upon themselves, so that's one less thing for you to worry about. 

Invoice Discounting 

This is similar to invoice factoring in many ways, with the exception that managing your customers' payments is still your responsibility since they will continue to pay you directly as usual. 

Because of this, your customers won't know you're using invoice discounting, as this is a confidential agreement, unlike invoice factoring. 

Additionally, with invoice discounting, you will typically only have access to up to 80% of the total invoice value.  

Selective Invoice Financing 

Only want to cash in on a select few invoices? No worries, that's what selective invoice financing is for, 

Selective invoice financing has two different sub-types: 

- Selective invoice discounting 
- Spot factoring

Both of these can be explored in more depth in our other post about selective invoice financing.

Single Invoice Finance 

Are even a few invoices too many? Well, how about just the one? 

Then single invoice finance is perfect for you! 

There are a few more stipulations when it comes to this method, so be sure to read up on them all in our post dedicated to single invoice financing. 

Get Invoice Finance for Your Business

If you think that invoice financing is something that could benefit your business, then we are here to help! 

We provide you with an invoice finance quote, bespoke to your business needs, completely free of charge. 

All you have to do to get started is tap the button below and answer a few questions about your business. 

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FAQs: Your Invoice Finance Questions Answered


Invoice finance is a payment solution that allows businesses to access up to 90% of the cash tied up in outstanding invoices, often within 24 hours. 

You use your unpaid invoices as security to take out a loan, which will usually pay you up to 90% of the total value in advance. 

Your customers pay the invoice amount to your provider, who will then transfer you the remaining 10%, minus any fees they charge for their service. 

This varies from provider to provider and will usually charge you interest on the borrowed amount and credit management fees. 

The interest amount will typically be 1.5% - 3% over the Bank of England base rates. 

Credit management fees will often be 0.25%  - 0.5%.


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