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What is Invoice Finance?

What is Invoice Finance?

Late payments from customers can often have a significant impact on the cash flow of a business, and with 3 in 5 businesses waiting on late payments from customers, it’s quite a common issue.

Invoice finance allows you to release the cash from unpaid invoices that are owed to your business. You can borrow money from a lender based on the amount that customers owe you.

It can be possible to receive up to 95% of your invoice total within 2 working days, depending on the lender. Invoice finance is a beneficial facility which can help a lot of businesses whose growth is hindered by slow payments and cashflow concerns.

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How Does Invoice Finance Work?

How does Invoice Finance work?

There are two types of invoice finance,


Invoice discounting is the most straightforward. You invoice customers as usual and you remain responsible for your own credit control. You receive an agreed percentage of the invoice from the lender and this is repaid with any additional fees when your customer pays their invoice. Invoice discounting is confidential, meaning your customers remain unaware.


Invoice factoring is where your invoices are effectively ‘sold’ to another company (the lender) at a discount, who subsequently collects the unpaid sums on your behalf.  With invoice factoring, your customers will usually know that you are factoring their invoices.

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Find Invoice Finance for Your Business

There are plenty of providers that offer invoice finance services.

But before you decide to move ahead, it’s important that you get the right advice about the different types of invoice finance, and whether it’s a solution that is right for you.

All of the finance experts at THEDIRECTORSCHOICE.COM have got a track record in helping businesses secure funding and manage their cashflow.

You can get in touch with any of the experts on our business funding page with complete confidence.

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  • Advantages of invoice finance

    • One of the main benefits of invoice finance is the fast access to cash.
    • You don’t have to wait for customers to pay their invoices – you can access cash within a couple of days of an invoice being issued.
    • Invoice finance also poses no risk to your business assets. It’s an unsecured loan that uses the value of your unpaid invoices.
    • Another advantage is the flexibility invoice finance provides - in terms of how you can spend the funds.


    Disadvantages of invoice finance

    • Like with any funding, a lender may conduct a credit check which could affect your credit report.
    • You’re dependent on your customers paying so, depending on your agreement, the lender may hold your business accountable if an invoice isn’t paid.
    • Depending on the service you require, lenders will make certain charges.
  • It’s worth speaking to a few lenders due to each one having different terms.

    However, these points can be used as a rough guide to check whether invoice finance could be right for you.


    Has your business got an established trading history?

    Do you send invoices? - to ensure the lender will get paid, they may ask you to prove that you issue invoices to customers

    How much are you looking for? - there is no minimum level of funding for invoice finance, however if you are looking for over £1 million, another funding option may be more suitable

    Are your customers paying invoices within 30-90 days? – some invoice finance lenders may decline your application if it takes longer than 90 days for your invoices to be paid.

    Do you have accurate financial statements? You may need to provide these as the lender may review them.

  • The money that you borrow from lenders is leveraged against your unpaid invoices.

    A lender may still check on the length of time you’ve been in business and the creditworthiness of your clients. But they are less likely to want a thorough review of your financial accounts than with other forms of business finance.

    This makes invoice finance an attractive source of funding for newer businesses without an established trading history, and businesses with poor credit.

  • One of the major benefits of invoice finance is that it provides fast access to cash. The speed of payment varies from lender to lender, but it is typical to receive funds within 24-48 hours after an invoice is raised.

  • This varies from lender to lender. Some lenders have a minimum turnover threshold to be eligible for invoice finance, whereas others waive this requirement.

    Lenders are more interested in the likelihood of the invoices being paid (the creditworthiness of customers) than any your trading history or credit score. This makes it one of the easier ways for new businesses to secure funding.  

  • This is one of the major downsides to invoice finance – it can be more expensive than other methods of business funding.  Terms and costs vary by lender, speak to one of our trusted lenders or brokers to understand your options and what rates are available.

  • If you need fast access to cash to assist your cashflow, invoice finance can be a great solution.

    If you’re taking a longer-term view and need to borrow larger amounts to fund your growth plans, you might be better considering bridging finance or a more traditional business loan.

  • Keeping a close eye on your cashflow is important for any business. Invoice finance provides fast access to cash based on the value of your unpaid invoices.

    It’s important to get the right advice before deciding that invoice finance is right for you.

    THEDIRECTORSCHOICE.COM brings a panel of trusted business finance experts together in one place and helps you find the perfect match for your business needs.

    Get in touch with our experienced finance partners to find out if invoice finance is the right solution for your business.